EUR/USD – Bulls Accelerate on Powell’s Dovish Pivot; Inverse Head-and-Shoulders Nears Completion
EUR/USD witnessed an exceptionally bullish turnaround during Friday’s trading session, propelled by distinctly dovish remarks from Federal Reserve Chair Jerome Powell. Initially opening in New York around the critical psychological level of 1.1600, following overnight trading lows near 1.1583 on EBS, the currency pair surged sharply as Powell emphasized rising downside risks to the U.S. labor market. This clear dovish shift significantly increased market expectations for an imminent rate cut at the September FOMC meeting, fueling aggressive declines in U.S. Treasury yields and the U.S. dollar broadly.
The sharp repricing of Fed rate-cut probabilities—now indicating over a 90% chance of a 25-basis-point cut in September—translated directly into a narrowing of the crucial U.S.-German yield differential. This narrowing further eroded the U.S. dollar’s yield advantage against the euro, accelerating EUR/USD upward momentum. Contributing positively, the broader risk-on sentiment driven by rising equities, higher gold prices, and notable declines in USD/CNH added additional downward pressure on the dollar, bolstering euro demand.
From a purely technical perspective, EUR/USD’s bullish breakout has considerably strengthened the pair’s technical outlook. The decisive move through significant resistance at 1.1715, followed by sustained gains above 1.1740 into the late New York session (registering an intraday increase of approximately 1.16%), strongly reinforces the bullish bias.
Momentum indicators strongly affirm this positive sentiment. The daily Relative Strength Index (RSI) has surged convincingly higher from neutral levels, reflecting robust upside momentum. Similarly, monthly RSI maintains an ascending trajectory, underlining the strong underlying bullish bias on a longer-term scale.
Crucially, EUR/USD is now trading confidently above its daily Ichimoku cloud and key short-to-medium term moving averages—including the 10-day, 21-day, and 55-day moving averages—further underscoring bullish market conditions. The alignment of these moving averages beneath the current price clearly signals bullish technical sentiment and strong upward momentum.
Notably, the daily chart illustrates a clearly defined inverse head-and-shoulders pattern, now rapidly nearing completion. The pattern’s neckline—established around the 1.1750 resistance level—represents the immediate technical barrier to bullish continuation. A confirmed daily close above this neckline would decisively validate the bullish reversal pattern, setting the stage for significant additional gains. Should this technical breakout materialize, EUR/USD bulls are likely to target initial resistance levels between 1.2250 and 1.2300, with longer-term bullish objectives potentially extending toward the major resistance zone near 1.2550-1.2600.
On the downside, initial support is firmly established at the recently breached resistance zone near 1.1715. Additional critical support lies near the daily Ichimoku cloud top at approximately 1.1650, closely reinforced by the alignment of the 10-, 21-, and 55-DMAs. A sustained bearish reversal below these support levels—particularly the 1.1650 area—would significantly weaken bullish momentum and suggest a possible reassessment of near-term price trajectory.
In conclusion, EUR/USD bulls are firmly in control, buoyed by Powell’s dovish comments and supportive technical indicators. Traders should closely monitor the 1.1750 neckline breakout, as a confirmed close above this crucial technical threshold would strongly signal bullish continuation, opening the pathway toward notably higher levels around 1.2250-1.2300 and potentially beyond.