The best performer Tuesday was the British pound which rose above 1.30 against the U.S. dollar. The strong rise occurred after dovish comments from Federal Reserve member Lael Brainard who said that US inflation is “well short” of the Fed’s 2 percent target and that Fed policymakers should be “cautious” on further interest rate hikes. These comments drove the greenback lower and its counterparts higher in return.
The euro, however, failed to benefit from the USD-weakness and traded sideways between 1.1940 and 1.1870. This range-bound price action was much to the displeasure of traders in the EUR/USD. Investors adopted risk-averse behavior ahead of tomorrow’s European Central Bank meeting. It is expected that ECB President Mario Draghi will express concern over the euro’s strength while he may refrain from making an announcement on winding down the ECB’s quantitative easing program. So, no matter what happens tomorrow, investors expect the ECB to provide clarity on its stimulus exit. We are in the starting blocks for higher volatility and price breakouts in the EUR/USD which could already happen ahead of the ECB meeting.
We see a symmetrical triangle in the 4-hour chart after prices have narrowed. This pattern could predict upcoming price breakouts on either side. On the topside, we are looking for breakouts above 1.1930 whereas, on the other side, we will focus on prices below 1.1885.
The cable formatted an uptrend channel and tested the upper trend channel line, which has served as a resistance for the time being. In case of a break above 1.3060, we expect the cable to continue its upward movement towards 1.31 and possibly 1.3150. If the pair, however, remains below 1.3050, we expect a dip towards 1.2950.
Apart from the U.S. ISM Services Index due at 14:00 UTC, there are no top-tier reports scheduled for release today.
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