EUR/USD is trading near 1.1650, trading at its three-week high. The pair is benefiting from risk sentiment, which is causing the decline in the US dollar.  The EUR/USD daily chart shows that the pair is moving within the range of 1.1560 – 1.1620. 

The Relative Strength Index of 44, with no trend, shows that the pair is in a consolidation. However, the recent price action illustrates that an inverse head and shoulders pattern is forming. But it will not confirm its validity until a daily close above the neckline around 1.1625. Should this be the case, a move towards 1.1700 is to be expected.

Treasury yields are softening as poor U.S. industrial data dampens hawkish Fed expectations. Focus on ECB and the Fed speech.

On the other hand, a failure at 1.1625 would resume the downtrend of the EUR/USD pair. The first support would be the September 30 low at 1.1562, immediately followed by the October 12 low at 1.1524.

Asian markets are cheering the rise on Wall Street amid the prospect of robust corporate earnings, mitigating concerns over rising inflation risks and their impact on the economic recovery.

However, the divergent monetary policy outlooks from the Fed and the European Central Bank (ECB) could pose a downside risk to EUR/USD’s continued uptrend. The Fed is on track to withdraw pandemic stimulus as early as November, while the ECB is calling for maintaining a high degree of flexibility in post-crisis stimulus.

Throughout the day, the pair will continue to be dependent on the US dollar’s price action and risk trends in a data-poor economic calendar. Speeches from the ECB and Fed policymakers will be in the spotlight.