- EUR/USD has created a minor double bottom near 1.12.
- Trades increase bets of an aggressive Fed rate cut.
- Below-forecast German PPI will likely hurt the EUR.
EUR/USD seems to have created a minor double bottom pattern with the neckline resistance at 1.1286 over the last 13 days.
A break above 1.1286 would create room for a rally to 1.1380 (target as per the measured move method). That looks likely as traders have increased their bets that the US Federal Reserve (Fed) would cut rates by an aggressive 50 basis points on July 31.
The probability that Fed would reduce interest rates by a half percentage point at its July 30-31 policy meeting stood at 63% in the North American session on Thursday, up from 34% on Wednesday, according to CME Group’s FedWatch program.
However, the case for a double bottom breakout in the European session would weaken if the German German Producer Price Index (PPI), scheduled at 06:00 GMT, drops more than expected, reinforcing dovish European Central Bank (ECB) expectations. It is worth noting that a significant majority in the market, including rating agency Fitch, believes the ECB will restart the QE program.
That said, the pair will remain in the hunt for a double bottom breakout as long as it is held above 1.12. In fact, any weakness, seen after German data could be reversed in the US session if the Michigan Consumer Sentiment Index (Jul) due for release at 14:00 GMT today, misses estimates by a big margin and Fed’s Bullard sounds dovish, highlighting the need for “insurance cuts”.
As of writing, EUR/USD is trading at 1.1262, representing marginal losses on the day, having hit a session low of 1.1240 earlier today.
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