EURUSD At Risk of a Sharp Reversal

Summary:

EURUSD at risk of a major reversal if it closes the gap from Monday. At this point, bears should wait for a break before pushing the pair lower.

The EURUSD pair continues to find buyers at the start of the new trading year. It opened the year with a gap higher, a gap that remains open at the time of writing this article.

While gaps are not mandatory to close the same day or week, a close of this one should trigger more weakness on the EURUSD pair. More precisely, the pair seems to form a triangle as a reversal pattern, and the closing of the gap should start a bearish trend all the way down to 1.21 and more.

The risk to this market is that the Georgia runoff will end up with Democrats not winning, not even a seat out of the two for the Senate. As the markets do not forecast such an event, we may see a move higher in the dollar – lower in the EURUSD pair. The stock market selloff ended by the time the cash market closed, and today it is the moment of truth for both the dollar and the equity market.

EURUSD Technical Analysis

As always, it is wise to wait for the market to move first before entering. As such, bears may want to wait for the price to break the lower edge of the triangle before going short for the 1.21 level while having a stop loss at the previous highs.