EUR/USD Nears $1.1810 Breakout: Can Bulls Push Toward $1.1863?
The euro is pushing higher against the dollar in early European trading, with EUR/USD at $1.1785. Investors are ignoring...
Quick overview
- The euro is rising against the dollar, with EUR/USD at $1.1785, as investors focus on the upcoming US Federal Reserve policy meeting.
- Traders are anticipating a 25-basis-point rate cut, contributing to a weaker US Dollar Index, which fell to its lowest in three weeks.
- Supportive comments from ECB officials and stabilizing inflation are bolstering the euro, despite a recent downgrade of France's credit rating.
- EUR/USD is testing breakout levels, with potential trading strategies suggesting a buy above $1.1810 for further gains.
The euro is pushing higher against the dollar in early European trading, with EUR/USD at $1.1785. Investors are ignoring last week’s downgrade of France’s credit rating and are focused on the US Federal Reserve’s policy meeting where the first rate cut in nine months is expected.
According to CME’s FedWatch Tool, traders have fully priced in a 25-basis-point cut, with a small chance of 50. Deutsche Bank expect three cuts this year and the federal funds rate to be 3.50%-3.75%. The softer policy outlook has weakened the US Dollar Index which fell 0.28% to 97.34, its lowest in three weeks.
ECB is supportive
While the Fed is in the spotlight, the euro is being underpinned by supportive comments from ECB officials. Isabel Schnabel said rates are “in a good place” as inflation is stabilizing at the ECB’s 2% target. Upcoming Eurozone data – Italy’s inflation, ZEW Survey and industrial production – will be key.
Fitch Ratings expect two Fed cuts this year but no more from the ECB. That divergence is still favouring the euro, especially as US data such as August retail sales (0.3% MoM) and industrial production (-0.1% MoM) are slowing down.
EUR/USD eyes breakout levels
On the charts, EUR/USD is testing the upper band of the ascending channel at $1.1810. A series of higher lows since early September is bullish, the 50-SMA at $1.1719 is supporting and the 200-SMA at $1.1603 is the broader trend.
Recent candles are small-bodied following strong green bars – classic consolidation before a breakout. The RSI is 68.5 and not diverging, so there’s room for more upside. Traders will also note a “three white soldiers” pattern, often a continuation signal.If buyers go above $1.1810, resistance is at $1.1838, then $1.1863. Failure to break higher will see a pullback to $1.1742, the channel support.
Potential Trade
Think of EUR/USD as “climbing a staircase”. A safer entry is after a confirmed break above $1.1810. Buying at $1.1820 with stops at $1.1740 will protect, and targets at $1.1838 and $1.1863 will give room to run. More cautious traders can scale out at the first resistance and ride the rest of the way to the channel top.
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