17.12.202122:31 Forex Analysis & Reviews: EUR/USD upside invalidated, larger drop favored

The EUR/USD pair was plunging at the time of writing as the Dollar Index has managed to rebound. The price invalidated a potential bullish reversal, so a deeper drop is in cards again. As you already know from my previous analysis, the US Dollar remains strong despite a temporary depreciation. The DXY was too overbought to be able to climb higher after the FOMC, that's why we have a short-term retreat.

Fundamentally, the Eurozone Final CPI was reported at 4.9% matching expectations, while the Final Core CPI rose by 2.6% as expected. Unfortunately for the Euro, the German IFO Business Climate dropped from 96.6 to 94.7 far below 95.3 estimates, while the German PPI registered only a 0.8% growth versus 1.4% expected.

EUR/USD false breakouts

EUR/USD failed to stabilize above the downtrend line invalidating a potential leg higher and a reversal. Now, it challenges the Ascending Pitchfork's lower median line (lml) which stands as a dynamic support.

Closing and stabilizing under this line may activate a deeper drop towards 1.1186. As you can see the pair is still trapped between 1.1374 and 1.1186 levels. After failing to reach the 1.1374, the EUR/USD pair could come back down towards the range's support.

EUR/USD outlook

Its false breakouts above the downtrend line and the aggressive sell-off through the 1.1300 psychological level signaled strong sellers and more declines. Actually, the aggressive drop below 1.13 and under 23.6% was seen also as a short opportunity.

After the current drop, the EUR/USD could come back to test and retest the broken levels before resuming its downtrend. A larger downside movement will be activated by a valid breakdown below 1.1186.