EUR/USD is currently finding support at the bottom of the rising channel on the daily time frame while stochastic is indicating deeply oversold conditions. If the support area holds this week, EUR/USD might make its way to the middle of the channel or the nearby resistance at 1.3750.

On the other hand, a strong downside break might mean further losses for the pair. The ECB is scheduled to make its rate statement this week and possibly announce further easing measures in order to combat weak inflation and the rising euro. A downgrade in euro zone CPI forecasts might lead to pricing in for further ECB stimulus, which might lead to a downside break even before the actual statement is made.

Shorting on a break of 1.3600 and aiming for the 1.3000 levels if the CPI comes in weak could yield a high return on risk with a 150-pip stop. On the other hand, the potential for disappointment and profit-taking with no ECB easing could lead to a bounce up to the top of the channel.

By Kate Curtis from Trader’s Way