EURUSD Short-Term Reversal Pattern

EURUSD Short-Term Reversal Pattern

EURUSD Short-Term Reversal Pattern EURUSD has been treading lower across all time frames but it seems that a short-term reversal might take place. On its 1-hour chart, the pair has formed a double bottom pattern, indicating that the downtrend could turn.

The pair has to break past the neckline of the chart pattern around the 1.0600 major psychological level before confirming the potential uptrend. Stochastic is suggesting that this is possible since the oscillator is already in the oversold area and might be ready to turn higher.

EURUSD Forex Forecast

If price breaks past 1.0600 and the moving averages, the pair could be in for around 200 pips in gains, which is the same height as the chart pattern. However, if the neckline and moving averages continue to hold as resistance, EUR/USD could move back to its former lows near 1.0450 or create new ones.

The main event risk for this EURUSD setup is the upcoming FOMC statement, which could show if the US central bank is moving closer to a rate hike or not. The removal of the phrase “can be patient” in beginning to normalize policy could mean that they are likely to tighten after a couple of meetings.

On the other hand, if the Fed retains its cautious bias for now, market participants might start doubting that a rate hike could take place within the year. This could lead to a massive unwinding of dollar longs, which could lead to a longer-term reversal for EUR/USD.

The path of least resistance is still to the downside though, as the shorter-term moving average is moving below the longer-term moving average on EUR/USD’s 1-hour chart. An upward crossover could be an early signal that a reversal is underway, but there appear to be no catalysts supporting euro gains other than potential profit-taking.

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Samuel Rae is an active retail trader across a variety of assets, including currencies, stocks and commodities and the author of Diary of a Currency Trader (Harriman House). His personal strategy focuses primarily on classical technical charting patterns with a fundamentally supportive bias, combined with a strict, risk management-driven approach to entries and exits. He is an Economics graduate from Manchester University, UK.