EUR/USD hovered little changed near recent 3-1/2 month lows on Friday as sentiment took on a bearish tone after charts registered an ominous death cross formation nL1N2OX16N, which was reinforced by a head-and-shoulders top.
EUR/USD rallied sharply higher in the summer of 2020 and that lift extended near 1.2350 in January 2021 but upward momentum failed and the pair has been trading in the 1.1600-1.2350 range since November 2020.
While trading in that range EUR/USD was in the process of building a major head and shoulders topping pattern.
The pattern completed recently after the neckline, which currently sits near 1.1785, was broken earlier this week.
Downside follow through below the neckline has been limited but completion of the head and shoulders pattern adds another bearish technical factor.
The head and shoulder top suggests EUR/USD could fall close to 600 pips.
A drop of that magnitude would see EUR/USD test the 1.1170/1.1220 zone where a series of daily lows from mid-June to early July 2020 sit.
Views for a drop near 1.1200 are emerging.
Strategists a Societe Generale say EUR/USD could trade 1.1200 in one year nL1N2OY0OW.
Should the Fed take a less dovish stance Wednesday the probability of a 1.1200 test will increase.
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