EUR/USD - Consolidation ends with hawkish ECB, Third ‘White Soldier’ in progress, Is 1.15 on the cards?
Markets believe the ECB is closer than ever to the QE taper, which is evident from the fact that the plunge in the EUR/USD after the central bank’s U-turn on Draghi’s hawkish comments was short lived.
The spot fell to a low of 1.1291 on Wednesday before regaining poise to end the day higher at 1.1376. The broad based USD selling in Asia pushed it higher to 1.1419 levels.
Third White Soldier in progress
‘Three White Soldiers’ is a bullish candlestick pattern usually used to predict the reversal of the downtrend. The pattern may also form after a bout of consolidation as seen on the daily chart. The currency pair was stuck in the range of 1.13-1.11 before Draghi’s hawkish twist boosted European bond yields and yielded a two-day winning streak - Two positive (white) daily candles.
The ‘third white soldier’ is in progress today. The odds are high that the spot would close on a positive note, as markets continue to price-in the hawkish ECB. However, caution is advised as the daily chart of the 10-year German bund yield shows a Doji candle (indecision).
Focus on the German CPI release due at 12:00 GMT
The data are expected to show a slight drop in the inflation. A better-than-expected data would only boost speculation of early ECB policy tightening and yield another leg higher in the German yields and the Euro. That would also mark confirmation of a ‘three white soldiers’ pattern and open doors for a break above 1.15 handle.
On the other hand, a weaker-than-expected CPI could yield a pull back in the German yields and EUR/USD to critical support level of 1.1284.
EUR/USD Technical Levels
A break above 1.1466 (June 2016 high) would open doors for 1.15. A violation there would open up upside towards 1.1616 (Apr 2016 high). On the other hand, a breakdown of support at 1.1366 (Aug 2016 high) could yield a pullback to 1.13 (zero figure) and 1.1284 (June 6 high). The daily RSI is dangerously close to being overbought.