EUR/USD appears set for consolidation ahead of Wednesday's Fed meeting, and that phase is likely to resolve with a break to new highs.
An inverted daily hammer formed Friday after the U.S. jobs report and today a bull hammer has formed nL1N2DL0NU, suggesting investors could be waiting for Fed risk to pass.
Options bolster the consolidation view as EUR/USD risk reversals EUR1MRR=FN show vol premiums for calls over puts eroding toward neutral.
EUR/USD longs are likely to be rewarded for their patience.
Despite the big jobs surprise, the Fed is unlikely to reverse current policy.
Rates futures FFZ1 expect fed funds to hold near zero at least until end-2021.
Euro zone inflation could help buoy EUR/USD, with euro zone 5-year/5-year inflation linked swaps EUIL5YF5Y=R currently at 3-month highs.
Euro positioning could indicate EUR/USD's rally could extend.
CFTC data 1099741NNET showed net-long euro positions increased again.
While a growing net-long position could typically be considered a contrarian indicator in this instance the increase could reflect investor confidence that EUR/USD will rise.
Until Fed risk passes EUR/USD should trade in the 1.1250-1.1400 range.