EUR/USD - Three White Soldiers bullish reversal confirmed, Is ECB rate hike speculation overdone?

Omkar Godbole FXStreet Contributor

EUR/USD closed at 1.1417 on Friday, marking the third straight monthly rise as investors baked-in the possibility of an early ECB taper and interest rate hike.

Technical bullish reversal

The spot has formed a nice falling tops formation from 1.6038 (July 2008 high). The ‘Three White Soldiers pattern at the bottom of 9-year long downtrend on the monthly chart indicates a strong trend reversal. However, it doesn’t mean that the spot is on a one way trip to key psychological figure of 1.20.

This is because the major part of the rally has been based on expectations that the ECB QE taper and a rate hike would happen sooner-than-expected.

Eonia curve steepening may be overdone

Draghi’s hawkish talk last week led to a marked steepening in Eonia forwards. The 12-month forwards currently hovers around -10 bp, which means the investors expect a 25 bps rate hike in one-year’s time.

The steepening may be overdone as ECB’s (potential) QE taper this year could weigh over inflation and force the ECB to delay the rate hike beyond Q3, 2018.

Focus on US data

The USD may strengthen if the US ISM manufacturing numbers beat estimates and shows a sharp rise in the employment. Moreover, it could lead to a steepening of the treasury yield curve and yield a technical pullback in the EUR/USD pair.

EUR/USD Technical Levels

The spot traded around 1.1410 in Asia. A break above 1.1428 (June 2016 high) would expose 1.1465 (Apr 2016 high) and 1.15 (zero levels). On the other hand, a breakdown of support at 1.1396 (5-DMA) would open up downside towards 1.1369 (1-hour 100-MA) and 1.1296 (June 14 high).

On the 1-hour chart, we see a head and shoulders pattern with neckline support at 1.1395. On the 4-hour chart, we see bearish price-RSI divergence.

	TREND INDEX	OB/OS INDEX	VOLATILY INDEX
15M	Bearish	Oversold	High
1H	Bearish	Neutral	Low
4H	Bullish	Neutral	Low
1D	Bearish	Overbought	High
1W	Slightly Bullish	Overbought	High
Updated Jul 3, 03:15 GMT

Author

Omkar Godbole

FXStreet Contributor

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

AUD/USD consolidates above 0.6950 amid risk aversion

AUD/USD consolidates in the Asian session on Thursday, trading just above 0.6950 as traders assess developments in the Middle East crisis. The Pentagon reportedly ordered readiness for potential strikes against Iran. This keeps the geopolitical risk premium in play, which, along with hawkish FOMC Minutes and elevated US bond yields, will likely keep the US Dollar underpinned at the expense of the pair.

USD/JPY slips below 158.00 as USD retreats

USD/JPY returns to the red below 158.00 in the Asian session on Thursday amid speculation that authorities will step in to prop up the Japanese Yen. Meanwhile, the US Dollar eases from near an 18-month high on profit taking, ignoring Wednesday's hawkish FOMC Minutes and the risk of a further escalation of tensions in the Middle East, adding to the pair's pullback.

Gold clings to daily gains; still below $4,150

Gold regains some composure and climbs back to the vicinity $4,150 mark per troy ounce amid decent gains on Thursday. The yellow metal’s recovery follows some loss of momentum in the US Dollar strength and a decent drop in US Treasury yields across the curve.

Crypto Today: Bitcoin, Ethereum, XRP extend sell-off amid ETF outflows

Bitcoin (BTC) extends its decline below $83,000 on Thursday as heightened selling pressure weighs on the market. Leading altcoins, including Ethereum (ETH) and Ripple (XRP), mirror the sector-wide pullback, with ETH dipping under $2,600 and XRP challenging support at $1.40.

ECB expected to pause in October before hiking rates in December – Reuters poll

The European Central Bank (ECB) is expected to leave interest rates unchanged in October before delivering another increase in December, according to a Reuters poll conducted October 5-8. The survey shows that 70 of 73 economists expect the ECB to hold its deposit rate at 2.50% on October 29, while 64 of 73 anticipate a 25-basis-point (bps) hike in December.

The UK 30-year gilt just hit a 1998 high. Is that good or bad for the British Pound?

The yield on the UK's 30-year government bond, or gilt, went through 6% on October 1 for the first time since early 1998, and on Monday the Pound was at its strongest against the Euro since June 2025. The gilt market's 28-year high is mostly someone else's. Since early May, the 30-year gilt yield has risen about 0.15 of a percentage point and the US 30-year about 0.7.