Euro-to-Dollar Rate Week Ahead Forecast: Bouncing Strongly From 200-week Moving Average

- EUR/USD is rebounding after reaching downside target.

- EUR/USD is showing early signs of a change in trend. 

- Euro eyes PMI data as US Dollar looms over China talks.

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The Euro-to-Dollar rate is rebounding higher after having fallen to new year-lows during the recent week, and there are early signs of a reversal in the 2018 downtrend.

While still in its early stages and vulnerable to a breakdown, the fledgling uptrend will probably endure over coming days now the exchange rate has formed two higher-highs and two higher lows on the 4-hour chart - a major indicator of early stage changes in trend. 

Above: Euro-to-Dollar rate shown at 4 hour intervals.

A break above the 1.1449 highs would likely see the short-term trend extend to the next target at 1.1500, which corresponds with the November 2017 and May 2018 lows, and is the possible neckline of a large head and shoulders pattern that is now visible on the weekly chart.

A large head and shoulders (H&S) pattern is a bearish sign that contradicts the short-term bullish outlook. However, it is possible that this H&S fails and the exchange rate doesn't break lower.

Above: Euro-to-Dollar rate shown at weekly intervals.

The exchange rate already broke below the pattern's neckline at the Nov 2017 and May 2018 lows, which is normally a bearish sign that a sell-off is underway.

However, in this case the pair fell only as far as the formidable obstacle that is the 200-week moving average, of which it bounced and began what now appears to be a short-term uptrend.

There is still a danger the exchange rate will fall as long as it remains trapped bellow the neckline - and it is highly likely to meet tough resistance at the level of the neckline if it climbs to it. Only a daily close above the neckline would eliminate the bearish threat from the H&S and really confirm a new uptrend is in play.

Despite the contradictory price-action on different time frames, we are bullish EUR/USD in the short-term. However, a strong break below the 1.1301 lows would revive the bearish trend and target the 1.0905 threshold.

The new low at 1.1301 also corresponds with several of our down-targets from last week's analysis including the 1.1310 calculated using the height of the triangle the pair was in previously and the 1.1200-1.1320 range of the lows of the 5th Elliot Wave which has been unfolding.

The fact that the pair has now reached both these down-targets also supports the idea that the exchange rate may be changing trend and preparing for a move higher.

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