The euro has been relatively choppy against the U.S. dollar since the beginning of the year. There hasn't been much going on so far to validate any meaningful moves in EURUSD to begin with, but that could soon change. The risks for the euro and the U.S. dollar are equal. While the uncertainty surrounding Trump's policies keeps the U.S. dollar nervous, the upcoming elections in the Eurozone will likely come to the forefront and the markets edge closer towards March.

The technical set up in EURUSD is pointing to a strong breakout which could potentially set the stage for a medium term trend in EURUSD. This could be significant as Netherlands will be holding its elections on March 15 and the D-date is close. Following the allegations by the U.S. on Russian interference, the Netherlands recently announced that all votes would be counted by hand to rule out any potential hacking threats.

The Netherlands election will be litmus test for Europe to say the least as it will indicate which way voters will swing to. The rise of Geert Wilder's far-right Freedom Party has already put some politicians on the alert. Later in the year, Germany and France will be voting and the outcome of Netherlands will no doubt have some kind of influence on the German and French elections.

The euro fell below $1.0400 late last year and it once against sparked rumors about the EURUSD parity. If I’m not wrong this would be the second year since the markets have been anticipating the single currency to reach parity against the U.S. dollar. Late last year the moves in the euro did indeed cause a flurry of talks and excitement about the euro parity but that didn’t materialize. It is unlikely that we will get to see parity anytime for the first half of this year.

U.S. Fed unlikely to hike rates in the first half of 2017

What could have been bullish for the U.S. dollar was the Fed’s hawkishness on hiking interest rates. The markets suddenly turned very hawkish on rates at the turn of the year. This was also partly due to the fact that the president-elect Trump promised fiscal spending, which hasn’t been mentioned yet. There are signs of the euphoria fading as evidenced by the fact that the U.S. growth in the fourth quarter has been rather lackluster after a solid performance in the third quarter.

The February FOMC meeting also saw the central bank staying mum on when the next rate hike will come. The payrolls report for January saw a good number of jobs being added during January, but wage growth remained weak rising just 0.1% on a month over month basis. The enthusiasm was also toned after December’s wage growth was revised down by half to just 0.2%.

Elsewhere, inflationary pressures are showing that most of the price increases are coming due to higher oil prices as wage growth remains sluggish. Considering all of this and the fact that markets which got ahead of itself under the Trump victory could start seeing a scaling back of expectations.

Last but not the least, let’s not forget about the dollar bashing by President Trump, which is weighing on the currency. Given the fact that the new president is likely to see manufacturing grow, a weaker currency is likely to be more preferred, regardless of what others in the Trump administration have to say.

EURUSD - Inverse Head and Shoulders Watch

For EURUSD, the sideways price action is likely to continue for a while but watch out for the dip to $1.0600 - $1.05800.

The Renko chart below shows a massive inverse head and shoulders pattern taking shape with the neckline resistance at $1.0800 currently being tested. The anticipated decline to $1.0600 - $1.0580 stems from the fact that the steep rally in price came with no meaningful pull backs to the support level that was formed.

Therefore, a decline to $1.0600 - $1.0580 could mean that the right shoulder could be formed. This would see another attempt in EURUSD towards $1.0800 and if this resistance breaks, further gains can be seen coming towards $1.1000 and $1.1200.