• EUR/USD technical charts favor a move higher to 1.18.  
  • The Chinese Yuan is regaining poise, could trigger broad based USD weakness.
  • The USD may pick up a strong bid if the Fed minutes reveal discussion on the higher neutral rate.

The EUR/USD could rise to 1.18 in the short-term, having formed a basing pattern around 1.15 over the last five weeks.

Weekly chart

The multiple long-tailed weekly candles at the long-term ascending trendline (drawn from Dec 2016 low and April 2017 low) signal bearish exhaustion, i.e. the sell-off from the February 2018 high of 1.2556 has run out of steam.

Daily chart

The bullish divergence of the 14-day relative strength index (RSI) validates the weekly long-tailed doji candles and signals a bearish-to-bullish trend change. Further, the 5-day and 10-day MA are beginning to curl up in favor of the bulls and the 30-day MA, which acted as a stiff resistance in mid-June, has shed bearish bias.

Clearly, the stage looks set for a rally to 1.1852 (June 14 high). The bull case looks even stronger if we take into account the signs of (bullish) turnaround in Chinese Yuan (CNY).

The recent slide in the Chinese currency made it a focal point of the market, meaning USD/CNY rally kept the USD better bid across the board. Now that CNY is showing signs of life, the greenback will likely take a beating across the board.

And last but not the least, the Fed minutes, scheduled for release tomorrow, are unlikely to help greenback in a significant way as the markets have already priced-in the faster pace of Fed rate increases. The dollar will likely pick up a strong bid only if the Fed minutes show the policymakers are considering revising higher the neutral rate.

View

EUR/USD may have bottomed out for now and could revisit 1.1852 in a week or two.

Only a weekly close below the long-term ascending trendline (drawn from December 2016 low and April 2017 low) would abort the short-term bullish view.

Acceptance below the weekly 200-MA, currently located at 1.1391 would signal a revival of the sell-off from the February 2018 high of 1.2556.

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