The EUR/USD climbed to a nearly three-month high this morning at 1.2240 following disappointing US housing starts figures. The dollar then regained some strength against the euro after minutes from the Fed's latest meeting showed that the debate is opening up about the U.S. central bank moderating its asset purchases.
Since the beginning of the month, the disappointing U.S. statistics have been repeating themselves and have brought analysts to downplay the probability of a normalization of the Fed's monetary policy. The market's probability of a rate hike by the end of the year has dropped from 15% at the beginning of the month to 8% on Tuesday.
That possibility has captured the attention of the markets and helped support the greenback. “Since the Fed met, the market is indeed focused on the progress of the economy and is discussing whether the Fed will reduce its asset purchases by the end of the year,” explained Joe Manimbo of Western Union.
From a technical perspective, the EUR/USD formed a major bullish reversal pattern yesterday by breaking above its resistance at around 1.22. Breaching this resistance allows for the formation of an “inverted head and shoulders” bullish reversal pattern theoretically paving the way for a rise to $1.27.
(Chart Source: Tradingview 19.05.2021)
Below these two resistances, the risk/reward ratio favors short-term selling. It will probably be preferable to wait for a return of the EUR/USD to the bottom of its channel, or to the neckline at $1.22, to reposition itself in the direction of the underlying trend.
Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.