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EUR/USD Forecast Update: US Dollar retreats on dovish comments

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The EUR/USD unexpectedly turned bullish over the last few days.

EURUSD Daily Chart

Technical Analysis

In the EUR/USD daily chart above, we see the currency pair testing the 1.19 region.

This comes after a significant bearish run and is not unexpected as the market never travels in a straight line.

I mentioned that a return of bullish recovery would probably face resistance at the 1.18 region, followed by 1.1880. This was spot on and both targets were achieved.

Do monitor the currency pair closely as of now as the week is ending. The question remains if the bulls have enough market will to push towards 1.2. Needless to say, 1.19 is key.

Sentiment Analysis

SP 500 Daily Chart

Looking at the S&P 500 chart above, we can see that the S&P 500 remains above 4000. This suggests a risk-seeking climate in the market.

The Cboe Volatility Index has dropped below 17, showing that volatility continues to recede.

Therefore, the shift of trajectory for the EUR/USD is unlikely to be risk-related.

A number of analysts had attributed the surge to profit-taking.

Furthermore, the signals from the Feds are dovish this week. The President of the Chicago branch, Charles Evans, was quoted saying “It is too early to start talking about talking about a QE taper.” Investors usually prefer a currency with higher interest rates, and this brings rain to their parade.

The USA FOMC Meeting Minutes is also aligned with the general theme of the central bank’s dedication to accommodative measures in order to support the economy.

The US Federal Reserve Chair Powell is due to speak soon. It is vital to monitor this event. A continuation of the dovish stance may put more pressure on the US dollar.

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