- EUR/USD created a long-legged Doji on Friday, signaling bear exhaustion.
- A close above 1.1306 is needed to confirm a bullish reversal.
- Trade optimism could keep the USD on the defensive, helping EUR/USD produce a bullish close above 1.1306.
EUR/USD is currently trading at 1.1315, having clocked a three-month low of 1.1334 on Friday.
The drop to November lows was likely triggered by a softer Eurozone/German economic data and dovish ECB expectations, but was short-lived, as markets offered the greenback in the NY session on speculation that the US and China would be able to reach some kind of trade compromise before the March 1 deadline.
The pair, therefore, recovered entire losses and ended largely unchanged on the day at 1.1291.
Essentially, EUR/USD created a long-legged doji candle, which is widely considered a sign of bearish exhaustion/indecision. A bullish trend reversal, however, would be confirmed only if the spot closes tomorrow above 1.1307 (high of Friday's doji candle).
That looks likely as the focus seems to have shifted from the Eurozone recession fears to the easing US-China trade tensions and growing evidence of a deeper economic slowdown in the US.
The focus, however, may shift back to the German recession fears if the ZEW survey, scheduled for release at 10:00 GMT tomorrow, disappoints expectations.
As for today, the spot is likely to trade in a sideways to the positive manner with thin volumes, as the US is observing a trading holiday.