EUR/USD: Focus on Fed minutes and yield differential

The immediate outlook on EUR/USD has turned bullish, courtesy of an inverse head-and-shoulders breakout on the 4-hour chart.
Dollar selling may gather pace, bolstering the already bullish setup in EUR/USD if the Fed minutes reveal a strong consensus on the need to change the pace or halt balance sheet normalization, if required.

Omkar Godbole FXStreet Contributor

The path of least resistance in EUR/USD is now to the higher side.

The currency pair jumped above 1.1333 yesterday, confirming an inverse head-and-shoulders breakout on the 4-hour chart. That pattern represents a transition from lower highs-lower lows to higher highs-higher lows and is widely considered a sign of bullish reversal.

The bullish breakout has opened up upside toward 1.14 and that level could be breached in the US session, if the Fed minutes, scheduled for release at 19:00 GMT, reveal growing consensus among the policymakers that balance sheet could be used as a tool, if economic conditions warrant.

The minutes are also likely to reiterate the "wait and watch" approach on interest rates counseled by Fed's Powell last month. That, however, has been priced in by markets.

Falling wedge on 10-year DE-US yield differential

The spread between the 10-year German (DE) and US government bond yields is currently seen at -254 basis points. Notably, it has created a falling wedge - a bullish reversal pattern on the daily chart. A break above -252 basis points would confirm a wedge breakout and open up upside toward the recent high of -240 basis points. A rise in DE-US yield spread could bode well for EUR/USD.

EUR/USD Technical Levels

1. R3 1.1459
2. R2 1.1409
3. R1 1.1376
PP 1.1326
1. S1 1.1293
2. S2 1.1243
3. S3 1.121

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

GBP/USD clings to daily gains near 1.3350

GBP/USD holds just in positive territory around 1.3350 on Friday as the Greenback keeps a vacillating price action. With Fed rate hike expectations easing and US markets closed for the Independence Day holiday, Cable remains on track to post solid weekly gains.

EUR/USD remains sidelined around 1.1440

EUR/USD holds on to its recent gains and consolidates around 1.1440 at the end of the week as the US Dollar lacks clear direction. In the meantime, trading conditions remain subdued, with volatility constrained by the closure of US markets for the Independence Day holiday.

Gold flirts with two-week highs, targets $4,200

Gold extends its recovery for a third straight day, advancing toward the $4,200 mark per troy ounce on Friday. The precious metal looks set to snap a four-week losing streak as softer-than-expected June US NFP data prompt investors to scale back expectations of further Fed tightening.

Crypto Today: Bitcoin, Ethereum, XRP advance amid renewed capital inflows

Bitcoin maintains its upward momentum, holding above the $61,000 mark at the time of writing on Friday. Major altcoins such as Ethereum and Ripple are also posting gains, signaling a modest uptick in market sentiment and renewed risk appetite among investors.

The Iran war failed to trigger a recession. Can the US economy keep defying expectations?

Nearly four months after the start of the Iran war, the US economy remains remarkably resilient. While the conflict initially triggered a severe disruption to global energy markets and a sharp rise in Oil prices, recent diplomatic progress between Washington and Tehran has eased concerns about a prolonged supply shock.

Kevin Warsh offers no policy clues: Why markets still got their answer

Financial markets came to Sintra looking for clues about the Federal Reserve's (Fed) next move. They largely left with confirmation that Fed Chair Kevin Warsh intends to make those clues much harder to find.