EUR/USD: Focus on Fed minutes

• EUR/USD was mildly bid in Asia, possibly tracking risk-on in equities.
• The pair looks set to re-test 100-day MA, having witnessed a bull flag breakout.
• Dovish Fed minutes could yield a convincing break above the 100-day moving average (MA).

The EUR/USD pair could scale the crucial 100-day MA hurdle on the back of the dovish Fed minutes, having reported moderate gains in Asia, possibly tracking the uptick in the Asian equities.

Growing optimism that there will be a US-China trade deal likely added to the bearish tone around the USD as well.

Notably, the pair witnessed a bull flag breakout, opening doors for a break above 1.15. Essentially, that pattern has boosted prospects of a bullish end of the day close above the 100-day MA, currently at 1.1477.

The breakout, however, depends on the tone of the minutes of the December Fed meeting, scheduled for release at 19:00 GMT.

The central bank hiked rates by 25 basis points (bps) last month, but revised lower its interest rate forecast to two hikes in 2019 – one less than it had previously forecast in September.

Further, Fed’s Powell was out on the wires last Friday, signaling a readiness to pause if the economy weakens.

The markets, therefore, are pricing in a rate pause throughout 2019 and are currently assigning a 35 percent chance of a 25bps rate cut in January 2019. These expectations would be reinforced if the Fed minutes reveal growing consensus at the Fed that a rate hike pause is needed. In that case, the EUR/USD could rise well above 1.15.

The markets, however, would fall behind the curve, if the minutes sound hawkish, in which case, a convincing break above the 100-day MA will likely remain elusive.

EUR/USD Technical Levels