EUR/USD - Market is bullish for the next quarter, focus on Fed minutes

The EUR/USD pair clocked a high of 1.1713 (highest since Aug 2015) on Tuesday before closing out almost on a flat note at 1.1645. The ‘gravestone doji’ look-alike candle signals bull market exhaustion, which gels well with the overbought 14-day RSI. 

EUR/USD 3 month 25 delta risk reversal turns positive

The bull market in the EUR/USD may have reached a point of exhaustion, although over the next three-month period, the outlook remains positive. This is evident from the positive EUR/USD 3 month 25 delta risk reversal. The reading moved above zero levels last week for the first time since 2010.  

The chart above shows- 

• EUR 1MRR faded the spike to 3.4, while the 3MRR has moved into the positive territory.
• Thus, a pullback in the EUR/USD could be seen in the short-term, although the market is clearly positioned for more gains over the next quarter. 

Focus Fed minutes 

The Fed minutes due today are likely to provide signals on economic outlook, interest rates and balance sheet normalization. Kathy Lien from BK Asset Management says, “The positives will probably outweigh the negatives, causing the dollar to extend higher post FOMC but the gains won't last as investors still question the firmness of US data.”

It’s all about inflation differential - Unless inflation does not show signs of life, dollar gains are likely to be short lived. 

EUR/USD Technical Outlook

FXStreet Chief Analyst Valeria Bednarik writes, “The bullish trend prevails, with the EUR/USD pair developing within an ascendant channel, coming from mid April, although in the short term, the stance is neutral, as the price barely holds above a bullish 20 SMA, whilst technical indicators lose upward momentum within positive territory. The 2015 yearly high was 1.1713, and a break above the level could see the pair approaching to the 1.1800 figure, where the pair has the 200 SMA in the weekly chart, and the top of the current bullish channel.”