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EUR/USD: calm before storm on Thursday
Information is not investment advice
What will happen?
Traders can’t wait for Thursday to come! Why? Two significant events will be out: the US inflation report and the ECB policy decision. They will probably shake the markets!
What to expect from ECB?
ECB is expected to avoid discussing any changes as the German ZEW economic sentiment came out worse than expected, that’s why the bank doesn’t have enough reasons to tighten the policy.
What to expect from US inflation?
If the US inflation is greater than the market forecast, the Federal Reserve may start discussing tapering (cutting asset purchases), which in theory would push the USD up. In the opposite scenario, if the US inflation is less than anticipated, the USD may weaken. However, it seems that traders do not expect the Fed to react even if inflation is hot as according to the central bank, inflation is only transitory. No action from the Fed – the USD is likely to fall. Follow the report and catch the overall market flow!
On the EUR/USD chart, the diamond pattern has recently occurred. The pair broke through the lower line at the right, which meant the trend changed its direction downwards and it was interpreted as a sell signal. The pair dropped to 1.2100. From that point, EUR/USD has recovered some of its losses and started modestly rising.
The pair has already crossed the 50-period moving average. It needs to break above the 100-period moving average of 1.2200 as well to confirm the bullish momentum. If it manages to cross it, the way up to the high of June 3 at 1.2215 will be open.
On the flip side, if it drops below the support zone of 1.2170-1.2160, it may fall to the 200-period moving average of 1.2140 and then to the low of late Mat at 1.2130.
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