Forex Forecast: Will EUR/USD continue to drop this week?

When the already overbought EUR/USD currency pair crushed through 1.38 last week, I simply knew it was the perfect time to go short. A sudden spike and drop like this happened before in January of this year, and it happened many times before. I've been following the EUR/USD for years and I noticed throughout the time that this Forex pair is notorious for 'sudden' very volatile movements that usually don't last a long time. 300 pips in a matter of a week, that's incredible, and certainly a big money maker if you're on the right side of the fence. My target was actually 1.3600, but looking back I should've held it a little longer - but of course I rather lock in my profits. At the moment I'm not holding any FX position, but my eye is once again on the EUR/USD.

Interesting pair

The Euro continues to remain to be one of those currencies that fascinate me, and here's why; it's like it is in this vicious cycle that it doesn't seem to know how to get out of. If the Euro trades too high, it'll hurt the Euro zone on a macro economic level, which is - in turn - bad again for the Euro currency (think high export prices) which consequently drives the Euro down again. But just not enough, so there's another bull run on the Euro, and the whole thing starts all over again.

EUR/USD outlook - the bullish rally is over

Will it continue to drop even further this upcoming trading week? I expect some volatility again after Thursday's ECB meeting. Draghi mentioned the Euro zone recovery is 'fragile' and might fiddle with rates, which always affect the currency pair. In trading I always create two scenario's, two 'game plans' if you will. When it goes up, what is my target and stop loss, the same goes in the event it goes down. Of course, I'm always more favorable towards one side, and this time again it remains a bearish outlook this week. Although many other analysts will probably disagree with me, I still think that the EUR/USD is severely overbought and that we could see it marching all the way down to the 1.30 levels. I'm waiting for a good entry position around 1.3550, with a target of 1.3350. On the flip-side, if the pair manages to break above the psychological level of 1.36, it may be an indication that there's another further upswing, which is driven by bullish speculators and has nothing to do with 'actual fair price'. In the latter, less likely scenario, we could see the EUR/USD trading towards 1.37 and beyond (1.3750).

On the interactive chart below we can see that downward trend started around 1.38, the high of last week.