EUR/USD price forecast amid dropping below COVID-19 lows

EUR/USD drop from 1.22 is nothing short of impressive. In hindsight, the bearish trend is so evident that it would have been impossible for traders to miss it.

Yet, a close look at the fundamentals at the time when the EUR/USD topped, and one would have a hard time pulling the trigger and buying the US dollar.

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After all, when the pair made a double top above 1.22, the US dollar was sold across the board, and equities traded at all-time highs. Things changed dramatically in 2022.

On the one hand, the Russia-Ukraine war puts tremendous pressure on the European economies. The euro’s inability to bounce is understandable because the sanctions imposed on Russia affect the European economic outlook.

On the other hand, the two central banks, the Federal Reserve and the European Central Bank, have divergent monetary policies. For example, the Fed already hiked the funds rate while its European counterpart did not.

Therefore, the bearish trend in the EUR/USD exchange rate is understandable from a fundamental perspective. But from a technical perspective, bulls may want to pay attention at current levels.

A possible falling wedge pattern calls for caution

A double top and a massive head and shoulders pattern called for a drop in the EUR/USD exchange rate back in 2021. The two patterns were obvious and did not disappoint technical traders.

Could it be the case that the current falling wedge pattern works too?

A falling wedge is a reversal pattern forming at the end of bearish trends. Its shape is given by the two trendlines that converge towards a common point, and the focus is on the upper trendline.

If and when the market breaks above the upper trendline, it is said that the falling wedge pattern ended. Traders wanting to go long there need a stop loss at the lowest point in the pattern and a target at half of the wedge’s length.

In this case, a daily close above the upper trendline would put the minimum target for the EUR/USD bulls above 1.15.

On the flip side, while inside the wedge, the market may keep form lower lows. As such, bulls need to be patient and let the market come to them.