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  • EUR/USD continues to build print higher highs again as we move through the remaining third of the month and into the FOMC meeting later on this week after a lull within the bullish channel where it was more debatable of how sustainable the bull trend formed in mid-August was.
  • Currently, EUR/USD is trading at 1,1756, down from 1.1815 and up from the low of 1/.1723.  

EUR/USD bulls got a much-needed boost at the start of the week from Draghi’s hawkishness when he came across pretty confident on inflation in remarks made at the European Parliament earlier today. This has altered the composition of the FX space and polishes those rose-tinted glasses that participants continue to survey the global economic backdrop. However, the DE/US spreads have come in and gives EUR/USD some extra upside range as we head into the FOMC later this week. The pair has also pierced the ascending trend line resistance and 13 June tops at 1.1851.  

In today’s remarks to the European Parliament, it was the passage on a “relatively vigorous pick-up in underlying inflation” that was seen as an insight into the ECB’s outlook which has underpinned an upside bias in EUR/USD. Elsewhere, fundamental releases have been limited to stronger than expected German IFO business while geopolitical risks otherwise weighed on risk in the European session whereby the euro was on the defence – (EUR/USD has broken below first support at the base of the hourly Ichimoku cloud (1.1726)). What we need to see now are higher lows in EUR/USD to confirm a continuation of the rising wedge that could result in a bullish reversal break-out of the 2018 downtremd (rather than bearish continuation breakout).  

The case for EUR/USD higher lows

Heading into the FOMC, analysts at TD Securities argue that the deck is stacked in favor of a hawkish outcome, which entails keeping the word “accommodative” in the statement and sets the course for further rate hikes:

“We suspect the market may infer that any tweak to this language signals the Fed is nearing the endgame. In other words, they are getting closer to the neutral rate and forward-looking FX markets can start to look for the next thing. That may not be their intention, but that would also be less relevant for the price action, and the market will take any watering down (or even removing accommodative) as uber-dovish. The other focus is the dots that with the addition of two new members might get inched lower on the longer-term projections. We doubt either of these scenarios are priced in, leaving the potential for an asymmetric response to the USD. Our dovish lean argues for selling into any USD rallies ahead of the meeting. This backdrop still favors some of the major European currencies, so we look for EURUSD to mark highers lows into the event risk.”

EUR/USD levels

EUR/USD has been unable to close above the 1.1780 Fibo, a 38.2 percent retrace of the 1.2556 to 1.1301 2018 fall but a rising wedge breakout could be on the cards if the pair can close above the June highs at 1.1850. First, the 1.1818 30-Day Upper Bollinger needs to give, but then, bulls will be well on their way to 1.1928 as being the 50% Fibo 1.2556-1.1301. To the downside, below the day’s lows, 1.1687 is the daily Tenkan-Sen, then the 1.1683  comes as the 10-Day MA guarding the 1.1669 daily Low for Sep 20th and the confluence of the 1.1661 level as being the 100-Day MA.  

Analysts at Scotiabank argue that the EURUSD short-term technicals are neutral-bullish while daily momentum indicators are bullish and the DMI’s are confirming. “Recent resistance has been observed around 1.18, just above the first major retracement level (38.2% at 1.1780) of the February-August decline. Near-term support is expected between 1.1720 and 1.1700. There appear to be no major resistance levels ahead of the midpoint of the 2018 range (1.1928) and the 200 day MA around 1.1950.”