EURUSD could be in for a selloff, as the pair is forming a head and shoulders pattern on its hourly chart. Price is testing the neckline, and a break below support around the 1.0400 major psychological level could confirm a drop.

The 100 SMA is above the 200 SMA for now, but the gap between the moving averages has narrowed so much to hint at a bearish crossover soon. Price is moving below these indicators as well, so the SMAs could hold as dynamic resistance zones.

However, stochastic is already dipping into the oversold region to indicate exhaustion among sellers, so turning higher would mean a return in upside pressure. RSI is moving sideways on middle ground to reflect consolidation, barely offering directional clues at the moment.

The chart pattern is approximately 100 pips tall, so a resulting break of the 1.0400 neckline support could take EURUSD down to 1.0300 next. If support holds, on the other hand, a bounce back to the highs at 1.0500 could follow.

EURUSD has been weighed down by diverging monetary policy biases between the ECB and FOMC. The Fed kept rates on hold and gave a more hawkish than expected statement while the ECB lowered rates by 0.25% and reiterated a gradual approach to easing. Still, markets expect the ECB to lower borrowing costs again in March.

Weaker than expected US advance GDP data forced the dollar to retreat somewhat, as this clouded the outlook for future growth. The upcoming release of core PCE price index could make stronger waves among dollar pairs, as a disappointing print could undermine the Fed’s optimistic outlook.

Note that the CPI and PPI figures printed last week showed weak spots, so the Fed’s preferred inflation measure might also see similar results. On the other hand, a strong upside surprise could mean more gains for the dollar on dampened hopes of a March cut.