EUR/USD With Momentum, Testing 1.1100

The EUR/USD pair is holding to recent gains, but still limited by the 1.1100 psychological area. Is it near year-to-day highs and moving with a bullish tone ahead of the European Central Bank’s decision and following the Federal Reserve rate hike on Wednesday.

At the time of writing, the EUR/USD pair is trading at 1.1065, up 0.10% on the day. The DXY is falling also falling modestly, down for the third consecutive day, testing the 101.00 support area. Lower US yields are weighing on the US dollar.

The Federal Reserve raised interest rates by 25 basis points as expected but signaled a potential pause ahead. The better-than-expected ADP employment report failed to impress traders who are now looking at Friday’s Non-Farm Payrolls. If those numbers come out well above expectation it could support the dollar, which looks vulnerable across the board, close to key technical levels against many of its rivals.

In Europe, the ECB is expected raise interest rates. The question is by how much? It could be 25 or 50 bps. The central bank has few options that remain hawkish, considering the latest inflation numbers and current interest rate levels. The divergence in the near-term perspective between the ECB (hiking further) and the Fed (starting a pause) is a positive for the euro.

From a technical standpoint, the EUR/USD shows a short-term bullish outlook according to indicators on the 4-hour chart as the RSI and MACD are both in positive territory; and price is well above key Simple Moving Averages. The 20-period SMA offers support at 1.1015. A decline under 1.0990 would weaken the outlook, and a confirmation below 1.0950 should point to further losses.

On the upside, the 1.1100 area holds the key to more gains. A break above would open the doors to more gains targeting initially 1.1120 and then 1.1160. A false break or a failure to break above would keep the pair in the current range.