EUR/USD charts bullish outside-day ahead of Draghi speech, focus on inflation differential

• Euro carved out a bullish outside-day on Wednesday. A close above 1.1388 would validate the bullish candlestick pattern.
• ECB’s Draghi, scheduled to speak at 08:00 GMT, may offer his take on Italy’s budget crisis, interest rates, and inflation.
• Powell’s dovish comments would gain credence, leading to an extended sell-off in the USD, if the core personal consumption expenditure, due at 13:30 GMT, prints below estimates.  

The EUR/USD created a bullish outside-day (engulfing) candle on Wednesday as Powell’s dovish comments triggered a broad-based sell-off in the USD.

That candlestick pattern indicates the pullback from the recent high of 1.1472 may have ended at 1.1267. A bullish reversal, however, would be confirmed if the pair closes today above the 1.1388 (high of the bullish outside-day).

As of writing, the EUR/USD pair is trading at 1.1387. The short duration charts are biased bearish, as discussed earlier today. Therefore, the probability of the pair finding acceptance above 1.1388 today is high.

That said, the bullish tone may weaken if the European Central Bank (ECB) President Draghi sounds cautious on growth and inflation and puts more emphasis on Italy’s budget crisis.

The prospects of bullish outside-day reversal, however, would drop sharply if the preliminary German consumer price index, due for release at 13:00 GMT, shows a bigger-than-expected slowdown in inflation growth while the Fed’s preferred measure of inflation – the core PCE – remain at or above 2 percent, contradicting expectations for a drop to 1.9 percent.

The probability of a Fed rate pause in 2019 would rise sharply, sending the dollar lower across the board, if the core PCE prints below estimates. Later in the day, the focus would shift to Fed minutes release.

EUR/USD Technical Levels