EUR/USD sold off aggressively in early European trading on Tuesday, and despite some buying during the North American overlap, the currency pair is on pace to close with a doji print on a daily chart. The doji print would signal some exhaustion following Monday's rally, although the pair largely remains within a consolidation ahead of this week's European Central Bank (ECB) meeting.

The currency pair rallied on Monday after testing significant support near 1.1540. The price point represents a horizontal level at which buyers have been present on several occasions since the initial test in late May. The 20-day moving average is also found within close proximity and has held the pair higher since late August. In addition to the technical indicators mentioned, the neckline of a potential head and shoulders pattern is found near the level as well. The pattern began forming late last month, with the head of the pattern at the August high of 1.1733. In the event the pattern comes into play, measured move targets fall at 1.1350.

The British pound is recovering this week on Brexit-related headlines and stronger-than-expected U.K. GDP figures, putting some pressure on the greenback. GBP/USD traded above the psychological 1.3000 handle on Monday but is seen pulling back today, struggling to hold above the level. Volatility for the British currency has jumped this week, and EUR/USD traders should be mindful of sharp moves in the pound over the near term as they stand to continue affecting the dollar. The Bank of England (BOE) will hold its monetary policy meeting on Thursday, further adding to the potential for a sharp swing in the pound this week.

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In addition to the BOE meeting, the ECB is also scheduled to meet on Thursday. Market participants will be looking for progression on the central bank's transition to monetary policy tightening following several years of unprecedented easing. As well, policymakers may comment on global trade tensions and perhaps divulge who is expected to succeed President Mario Draghi after his term expires next year.

In the latest Commitment of Traders report, the single currency shifted to a net long following a three-week period where it was held net short. The euro has been relatively strong as of late, recovering sharply from August lows against the dollar and breaking out to fresh multi-year highs against the Antipodean currencies, justifying the position shift. The shift was attributed mostly to a short-covering while bulls added a little to their gross long positions following a notable draw in the prior week.

The U.S. Dollar index (DXY) trades in negative territory in the early week following a failed rally at 95.50 resistance. This level has proven to be significant in the index and is comparable to 1.1540 support in EUR/USD. A rally above the level will be encouraging for bulls, but while below it, the dollar remains at risk for a further correction, considering the evening star candlestick pattern that printed in August on a weekly chart. Near-term momentum is to the upside following early day buying today that resulted in a bullish engulfing candle on a four-hour chart. In this context, support close to today's low near the 95.00 handle will be important for a near-term bias.

Among the Majors, AUD/USD will be on the radar for many market participants this week. The pair has been under steady pressure despite DXY weakening since the middle of August. The pair trades at its lowest level since February 2016 and is nearing the psychological 0.7000 handle, which can be a level at which bears will look to take profit. Australian employment figures are scheduled for release this week and are likely to spur volatility.

The early week rally in EUR/USD failed at 1.1616 resistance, and this level remains significant, especially as it currently carries confluence with a declining trendline that originates from the August highs. Bulls will want to see a push above resistance at 1.1663, which would invoke a double bottom pattern from 1.1540 support and signal a continuation of the bullish trend from mid-August lows. A break below 1.1540 support would not only be encouraging for bears but is also likely to cause some long covering. Further support is found at 1.1457, with an eventual target at 1.1350 representing the measured move objective from the head and shoulders pattern. A break from the current consolidation appears likely this week considering the risk events scheduled on the economic calendar as well as ongoing headline risk.