Yesterday, the euro reached a low of 1.0808. This level coincides with the low of March 7. Both levels form a double bottom pattern. The bulls defended the level of 1.08, thus showing that it is a strong bottom and could signify a technical correction and a change in the trend so that the price could reach the 1.1270 level in the next few days.
EUR/USD bounced sharply during the last hours of the American session forming an engulfing candle on the 4-hour chart, which could indicate a change in trend in the short term.
The move higher took place amid a decline in the US dollar across the board. The dollar lost momentum as US yields turned lower.
The US 10-year bond yield fell from 2.76% to 2.61%, hitting the lowest level since Friday, while the 30-year Treasury bond yield fell from a high of 2.88% to 2.71%.
The US Dollar Index (USDX) fell sharply on the 4-hour chart. Currently it is trading at 99.66 with a bearish bias and could continue its downtrend in the coming hours until it reaches the support at 99.21 and even the 200 EMA at 98.60.
Considering USDX is trading below 8/8 Murray and below the 21 SMA on the 4-hour chart, this is the first strong signal that confirms a pause in the uptrend. EUR/USD could benefit from this scenario and could reach 1.1016 in the next few hours.
On Thursday, the European Central Bank (ECB) will announce its decision on monetary policy. A more aggressive decision towards inflation is expected. The ECB is expected to keep rates unchanged, but could decide to adjust monthly bond purchases. This could favor the euro and it could reach 1.12 without problems.
Our trading plan is to buy above the 21 SMA located at 1.0868 or in case of a bounce back to the 1/8 Murray around 1.0864. Our target will be the area 2/8 Murray at 1.0986 and the 200 EMA around 1.1016. If the bullish force prevails, we could continue buying with targets until 1.1108 (3/8 Murray).
On the 4-hour chart, we can see that the euro has broken the downtrend channel that was formed since the beginning of April and is also above the 21 SMA which adds a positive outlook. The euro is likely to continue its upward move to cover the GAP left at 1.1270 in the coming days.
