EUR/USD: trapped in a 300-pip range

• EUR/USD is trapped in a 1.15-1.12 range since mid-November.
• Dovish Fed expectations favor EUR rally.

The EUR/USD pair is currently trading at 1.1428 – still trapped in a 1.15-1.12 range, which has been in place since mid-November.

The pair picked up a bid in Asia at a low of 1.1395 amid broad-based USD weakness. On Friday, Fed’s Powell signaled that the central bank may pause rate hikes if the US economy weakened. He added that the central bank “will be patient” as it weighs future interest rate hikes in light of low inflation and the recent stock market volatility.

The dovish Fed expectations could keep the EUR on the offensive. Further, heightened prospects of Fed rate pause, easing US-China trade tensions and PBOC’s rate cut seem to have put a bid under the risk assets. The greenback, therefore, could take a beating, having acted as a safe haven in 2018.

All-in-all, the pair looks set to revisit the upper edge of the trading range, that is, 1.15. The options market data is echoing similar sentiments. For instance, the EUR/USD one month 25 delta risk reversals are currently trading at -0.20 – the highest level since April 2018. Notably, the gauge has risen sharply from -0.90 seen two months ago, which indicates rising demand for call options (bullish bets).  

The bullish case would further strengthen if the German factory orders and retail sales data, due at 07:00 GMT, betters estimates.

EUR/USD Technical Levels