Indecisive market, USD vulnerable to dovish Fed expectations

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  • Back-to-back Doji candles on the daily chart indicate the EUR/USD market has turned indecisive.
  • The rising Fed easing expectations make the US Dollar vulnerable.
  • EUR/USD needs to break above 1.1250 to revive the corrective rally.

EUR/USD’s corrective bounce from recent lows near 1.1027 has stalled with technical charts reporting signs of indecision in the market place.

Notably, the pair created a Doji candle for the second straight day on Wednesday. A Doji occurs when the market sees the two-way business before closing the period on a flat note.

Hence, that candlestick pattern is considered a sign of indecisive market.

Upside favored on rising dovish Fed expectations

The American Dollar is vulnerable to rising expectations of aggressive easing by the US Federal Reserve by the year-end.

“US rate markets are currently discounting almost three 25 basis point rate cuts before year-end and a 1.0% terminal cash rate. That USD vulnerable against the safe havens and the Euro,” according to Citi Research.

So, the EUR/USD pair could resume the corrective bounce with a convincing move above 1.1250 (Doji candle’s high).

The outlook, however, would turn bearish if the spot drops below 1.1167 (Doji candle’s low). A bearish close, if confirmed, would shift risk in favor of a drop to 1.10.

The EUR may come under pressure if the European Central Bank’s (ECB) Economic Bulletin, scheduled for release at 08:00 GMT, paints a negative picture of the Eurozone economy, boosting recession fears and forcing markets to shift focus from rising dovish Fed expectations to prospects of aggressive easing by the ECB. 

As of writing, the pair is trading at 1.1210.

Technical levels

 

2019-08-07 21:14:00

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