EUR/USD: Bearish outside day as Fed tempers aggressive rate cut expectations

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  • Tuesday’s bearish outside day makes today’s close pivotal. 
  • Fed officials pushed back on aggressive rate cut calls, pushing the USD higher. 
  • An above-forecast US durable goods data could yield a bearish daily close. 

The EUR/USD pair is teasing a break below key support at 1.1355, having charted a bearish candlestick pattern on Tuesday on the back of not-so-dovish comments by Federal Reserve (Fed) officials. 

The American dollar picked up a bid in the US trading hours after the Fed officials squashed expectations of a 50 basis point rate cut in July. President Powell said the central bank is assessing whether a cut in the borrowing costs is required. Further, Fed’s Bullard said the current US economic conditions do not warrant a 50 basis point cut in interest rates.

As a result, EUR/USD fell 0.28%, engulfing the previous day’s high and low. Essentially, the pair created a bearish outside day candle, which is widely considered an early warning of potential bearish reversal. The trend change, however, would be confirmed only if the pair closes today below yesterday’s low of 1.1344. 

A bearish close could be seen if the US durable goods data for May, due at 12:30 GMT, blows past expectations, validating Bullard’s comments and forcing markets to scale back expectations of aggressive Fed easing. 

On the other hand, a combination of above-above-forecast German Gfk Consumer Confidence Survey (Jul) (due at 06:00 GMT) and a weaker-than-expected US durable goods data could send the pair above Tuesday’s high of 1.1412. That would invalidate the bearish outside day and revive the case for a rally to 1.16 put forward by Friday’s bullish breakout. 

As of writing, the pair is trading around the former resistance-turned-support of the inverse head-and-shoulders neckline level of 1.1355. 

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