The minutes from the ECB’s October policy meeting hinted that the Bank may be preparing to wind down asset purchases when the current program expires in September. Instead of linking its QE program directly to the level of inflation, the ECB may instead make a vaguer pledge to keep policy generally loose until price pressures pick up.
Meanwhile on the other side of the Atlantic Federal Reserve officials have been publicly expressing more concern about the stubbornly low rate of inflation. While a rate hike next month is still essentially a foregone conclusion, the market-implied odds of three, and potentially even two, increases next year are fading as a result.
Technically speaking, EUR/USD (which composes nearly 60% of the dollar index) has gone from showing a head-and-shoulders topping pattern to a inverted head-and-shoulders continuation pattern. The current setup suggests that the world's most widely traded currency pair could retest its 3-year high near 1.2090, with an eventual "measured move" target all the way up above 1.2200.
Of course, like any single indicator, the current bullish pattern could fail as well; after all, EUR/USD is certainly relatively overbought on a short-term basis, and any progress on the US Senate's tax reform vote or the release of the October Core PCE later this week could reinvigorate the greenback. But as it currently stands, both the trend and recent technical pattern favor continued EUR/USD strength as long as rates can hold above previous-resistance-turned-support in the mid-1.1800s.
Source: Bloomberg Pro Terminal
Trader Bozhidar Arabadzhiev
Original post: EUR/USD H&S Pattern Flips In Favor Of Bulls
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