EUR/USD forecast: rebound likely as C&H pattern develops smoothly

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Sep 9, 2021
  • The EUR/USD held steady after the latest ECB interest rate decision.
  • The bank left interest rates unchanged and slowed the pace of quantitative easing purchases.
  • The pair has formed a cup and handle pattern signalling that a rebound is possible.

The EUR/USD price was in the spotlight on Thursday after the strong American initial jobless claims numbers and the relatively hawkish interest rate decision by the European Central Bank (ECB). The pair is trading at 1.1823, which is in the same range it was before the ECB decision. 

ECB interest rate decision 

The ECB concluded its September meeting and did what most analysts were expecting. The bank left interest rates unchanged and slowed the pace of asset purchases. 

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In this, it decided to move to a relatively slower pace of asset purchases in its €1.85 trillion Pandemic Emergency Purchase Programme (PEPP). The bank has been acquiring bonds worth about 80 billion euros per month since March this year. 

This decision came as signs emerged that the Eurozone economy has had a strong recovery. Data published this week revealed that the economy expanded at a faster rate in Q2 than expected. Additionally, last week, data revealed that the bloc’s inflation rose to 3.0% in August. This increase was better than the ECB’s target of 2.0%.

Therefore, the EUR/USD is in a tight range as investors shift their focus to the Federal Reserve, which will hold its meeting later this month. In a speech at the virtual Jackson Hole summit, the Fed chair committed to start tapering if the economy remains strong. 

Recent data suggests that the economy is moving in the right direction. Data published on Thursday showed that the number of Americans filing initial jobless claims declined to a post-pandemic low of 340k. This trend will likely continue after the Federal government ended some of the enhanced benefits. 

Also, additional numbers revealed that the country’s vacancies kept rising in August even as the hiring slowed. Also, last week’s data revealed that the country’s unemployment rate dropped to a low of 5.2%. Therefore, there is a likelihood that the Fed will follow through its commitment to tightening. 

EUR/USD analysis 

EUR/USD

The four-hour chart shows that the EUR/USD has formed a cup and handle (C&H) pattern. The upper part of this pattern is at last week’s high of 1.1908 while it formed the handle section this week. Indeed, the pair dropped to the invalidation point of the handle pattern at 1.1805 on Thursday. 

Therefore, based on this pattern alone, there is a likelihood that the pair will resume the upward trend in the coming week.

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