EUR/USD Forex Signal: Bearish Bias as Head-and-Shoulders Pattern Develops
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The EUR/USD currency pair showed a modest rebound during the latest trading session as investors assessed the implications of a criminal lawsuit involving Federal Reserve Chair Jerome Powell and prepared for a series of high-impact US macroeconomic events. Despite the short-term uptick, the broader technical and fundamental landscape continues to signal a bearish outlook for the pair.
At the time of writing, EUR/USD was trading near 1.1670, slightly above its monthly low of 1.1616, but still well below recent highs, reinforcing the prevailing downtrend bias. This article from LFtrade gives readers a complete explanation of the subject.
Market Overview: EUR/USD Attempts a Modest Recovery
The euro gained marginal ground against the US dollar as markets digested a complex mix of political uncertainty, monetary policy concerns, and upcoming economic data releases from the United States. However, the recovery lacked strong momentum, suggesting that buyers remain cautious amid growing downside risks.
The pair remains under pressure following a sustained decline from its December 22 high of 1.1805, highlighting a shift in sentiment away from the euro and toward the dollar, even as questions emerge about the independence of the Federal Reserve.
Federal Reserve Independence and Legal Risks
One of the most significant developments influencing the EUR/USD price action is the unfolding criminal investigation involving Jerome Powell, the current Federal Reserve Chair. The lawsuit centers on allegations that Powell misled Congress regarding the $2.5 billion renovation of the Fed’s headquarters, a project that reportedly exceeded its original budget by $700 million.
This marks the first time in history that a sitting Fed Chair has faced a criminal charge, raising serious concerns about institutional credibility and policy independence. The timing is particularly sensitive, as the US President has repeatedly pressured the Fed to cut interest rates in an effort to stimulate economic growth.
While the lawsuit itself has not triggered immediate market panic, it has introduced a layer of political risk premium that could influence USD valuation in the medium term.
Key US Macro Events Driving Near-Term Volatility
Looking ahead, the EUR/USD exchange rate faces several critical catalysts that could shape near-term price movements.
US Inflation Data (CPI)
The first major event is the release of the Consumer Price Index (CPI) report by the Bureau of Labor Statistics on Tuesday. This data follows a weaker-than-expected US jobs report, which showed that the economy added only 50,000 jobs in December, while the unemployment rate edged down to 4.4%.
Despite the softer labor data, most analysts believe the Federal Reserve will maintain a wait-and-see approach. According to JPMorgan analysts, the Fed is expected to hold interest rates steady throughout this year, with a potential rate hike in 2026 if inflation stabilizes.
PPI and Retail Sales
Additional volatility could come from Wednesday’s releases of the Producer Price Index (PPI) and US retail sales data. These indicators will offer deeper insight into inflationary pressures and consumer spending trends, both of which are critical inputs for monetary policy decisions.
EUR/USD Technical Analysis: Bearish Signals Strengthen
From a technical perspective, the outlook for EUR/USD remains decisively bearish.
The pair has been in a strong downward trend, falling from 1.1805 to near 1.1672 in just a few weeks. Crucially, price has moved below the 50-day Exponential Moving Average (EMA), a key indicator that often acts as dynamic resistance in trending markets.
Head and Shoulders Pattern Formation
Even more concerning for bulls is the formation of a head-and-shoulders pattern, one of the most reliable bearish reversal chart patterns in technical analysis. This structure typically signals the end of an uptrend and the beginning of a sustained decline, especially when confirmed by volume and momentum indicators.
Supertrend Indicator Turns Bearish
Adding to the negative outlook, the Supertrend indicator has turned red for the first time since October, reinforcing the view that selling pressure is gaining control.
EUR/USD Forecast and Key Support Levels
Given the combination of bearish technical signals, political uncertainty, and muted fundamental support, the EUR/USD pair is likely to resume its downward trajectory in the near term.
Sellers are expected to target the psychological support level at 1.1600, a break below which could open the door to further losses. Unless the pair manages to reclaim key resistance levels and invalidate the head-and-shoulders pattern, rallies are likely to be viewed as selling opportunities.
Bottom Line
While short-term fluctuations may occur due to upcoming US economic data and legal headlines, the broader EUR/USD outlook remains bearish, with technical indicators firmly favoring the downside. Traders should remain cautious and closely monitor support levels, macro releases, and Federal Reserve developments in the days ahead.