EUR/USD traded to a 4-session low on the back of broad-based dollar buying Tuesday, but inflation expectations and technicals likely make this dip a buying opportunity ahead of the ECB meeting.
Market-based euro zone inflation expectations have reached a more than three-year high.
The 5-year/5-year inflation linked swap recently completed a brief consolidation phase and then rallied to levels not seen since June 2018.
Meanwhile, ECB policy makers have voiced inflation concerns and rhetoric has suggested a reduction in PEPP could keep inflation from overheating nF9N2N601NnS8N2MM038.
Technicals highlight EUR/USD's upside risks.
August's monthly bull hammer candle has been followed by September strength, and a rising monthly RSI implies longer-term upward momentum is in place.
Additionally, EUR/USD is trading above the daily cloud base as well as the 10-21- and 50-daily moving averages.
Daily charts also show the right shoulder of a possible head and shoulders bottom coming into view with the neckline sitting near 1.1910.
A risk to the EUR/USD bullish scenario would be a dovish surprise from the ECB.
Should the central bank make no change to its current policies, EUR/USD bears are likely to take charge and drive the pair toward August's monthly low and possibly key support near 1.1600.
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