EUR/USD: Bull breakout triggered on dovish Fed

• EUR/USD closed above the crucial 100-day MA hurdle yesterday, courtesy of dovish Fed minutes and the resulting dollar sell-off.
• The bull breakout has opened up upside toward 1.16. The pair could find acceptance above that level if the ECB minutes, scheduled at 12:30 GMT, sound hawkish.

The EUR/USD crossed the stiff 100-day moving average (MA) and closed well above 1.15 yesterday, confirming an upside break of the two-month-long trading range of 1.12-1.15.

The bull breakout triggered by dovish Fed minutes has opened the doors for 1.16. That psychological hurdle could be convincingly scaled if the minutes of the latest European Central Bank (ECB) meeting downplay the recent slowdown in the economy and focus more on wages, which are now growing at the fastest pace in a decade.

Moreover, that could boost the prospects of an early ECB rate hike, leading to a deeper drop in the US-German yield differentials in the EUR positive manner. As of writing, the 10-year yield spread is seen at 248 basis points (bps) – down 30 bps from the 2018 high of 278 bps.

Further, the dollar has likely lost its haven appeal. After all, the Fed policy has become sensitive to the volatility in stocks and bonds.   A heightened risk aversion, therefore, will likely boost Fed rate pause odds and strengthen the bullish case in EUR/USD.  

It is worth noting that stocks could suffer losses in the short-run as the US-China trade negotiations failed to produce a breakthrough deal.

EUR/USD Technical Levels