EUR/USD Bull Flag Still on Radar as RSI Preserves Bullish Trend

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EUR/USD Rate Talking Points

EUR/USD breaks out of a narrow range to trade to a fresh monthly high (1.1345), and a bull flag formation may unfold over the coming days as the Relative Strength Index (RSI) continues to track the bullish trend from earlier this year.

EUR/USD Bull Flag Still on Radar as RSI Preserves Bullish Trend

EUR/USD appears to be on track to test the June high (1.1423) following the limited reaction to the US Non-Farm Payrolls (NFP) report as the US Dollar depreciates against all of its major counterparts since the start of July.

It seems as though the weakness in the greenback will persist as the IG Client Sentiment report continues to reflect crowding behavior in the currency market, and EUR/USD may stay afloat ahead of the European Central Bank (ECB) meeting on July 16 as the Governing Council appears to be on track to retain the current policy.

Recent remarks from ECB Chief Economist Philip Lane suggest the central bank will move to the sidelines after expanding the Pandemic Emergency Purchase Programme (PEPP) by EUR600 billion in June as the Euro Area is in “the second stage of recovery.”

The ECB appears to be on track to carry out a wait-and-see approach even though the central bank stand ready to “adjust all of its instruments” as board member Yves Merschreveals that a COVID-19 recovery fund “would reduce the burden on monetary policy and the need for further easing of the policy stance.”

In turn, President Christine Lagarde and Co. may gradually alter the forward guidance over the coming months as European Council President Charles Michel vows to ‘start real negotiations with the member states, and will convene an in-person summit, around mid-July in Brussels,’ and a growing number of ECB officials may tame speculation for additional monetary support as “euro area activity is expected to rebound in the third quarter.”

With that said, the reluctance to implement lower interest rates may keep EUR/USD afloat as the ECB appears to be on track to retain the current policy, and the exchange rate may stage another attempt to test the March high (1.1495) as a bull flag formation takes shape, while the Relative Strength Index (RSI) continues to track the bullish trend from March.

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