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EUR/USD Uptrend forming, dovish Fed expected

EUR/USD: A Rare Fledgling EUR Uptrend Forming; A Wedge Bottom Confirmed

Bank of America Merrill Lynch Research discusses EUR/USD outlook and highlights a bullish bias from the technical and quant perspective.

“Cumulative EUR/USD price action had reset to flat, offsetting depreciation of the last 3 months. The broader USD trend has faltered and rolled over, with the MAA breadth reverting to just +2 after briefly capping at +9 in April, consistent with USD selling we saw in our proprietary flows. “The short-dated SDR flows in EUR/USD leaned more toward calls last week on the back of a robust pickup in volumes. Our positioning model is showing a rare fledgling EUR uptrend forming with rising MAA, supported by bullish Up/Down vol and Residual Skew,” BofAML notes. 

A wedge bottom pattern is confirmed and targets 1.1461, 1.1545, 1.1660 and possibly 1.1830. We favor being long or buying a dip into the mid-1.12s and, while 1.11 holds, looking for a rally to aforementioned targets. A base near 1.11 and breakouts above the 50d SMA, trend line, prior peaks, 100d SMA and April high suggest an uptrend is underway,” BofAML adds. 

USD: Expect A Dovish Tilt To Easing Bias From FOMC But Without Pre-Commitment

ANZ discusses its expectations for this week’s FOMC June policy meeting.

“The Federal Open Market Committee (FOMC) meets this week. Given recent dovish comments from Fed officials, we expect a shift to an easing bias. At a minimum, we anticipate a flattening in the dot plot. Chair Powell is likely to reiterate that the FOMC stands ready to support the expansion. We don’t expect a pre-commitment to easing, but acknowledge there are risks to our view,” ANZ projects. 

“We look for the FOMC to end quantitative tightening now.  Our call is for the FOMC to start cutting rates later this year as we anticipate ongoing trade uncertainty to linger and weigh on growth and markets. Easier policy will also provide a needed boost to cyclical inflation,” ANZ adds.