The US CPI report yesterday missed expectations across the board with unrounded figures being even lower. This has led to a big rally in the EURUSD pair as the USD got offered across the board. Curiously, the market is still fully pricing a 25 bps hike at the next FOMC meeting, probably because of labour market tightness and the Fed speakers not hinting to a skip or pause after the CPI release.
The ECB has already committed to a rate hike in July, while there is a stronger debate on what will happen in September. In fact, the ECB members keep repeating that the September hike will depend on the data.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that EURUSD has rallied strongly since the bounce from the red 21 moving average. The price is now at the top trendline of the big rising wedge pattern. We can also see that there’s a big divergence with the MACD which is generally a sign of weakening momentum often followed by pullbacks or reversals. The price is also overstretched as we can see by the distance from the blue 8 moving average. Generally, we can see some consolidation or a pullback into the moving average before the next move.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we had the ascending triangle pattern near the 1.0850 level and the breakout to the upside led to a strong rally into the 1.1150 level. Here is where the sellers are likely to step in with a defined risk above the top trendline and target the bottom trendline somewhere near the 1.0750 level. The buyers, on the other hand, will need to break above the top trendline with conviction to keep bidding to new highs.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price is breaking above the top trendline of the wedge pattern, but after such a strong run to the upside there’s a high risk of a fakeout, especially if the data in the next days goes against the trend. If we get a pullback, the buyers are likely to lean on the blue trendline to try another breakout. The sellers, on the other hand, should extend the selloff if the price breaks below the trendline.
Upcoming Events
Today the market will focus on the US Jobless Claims to see if the labour market remains healthy or there are signs of cracking. At this point it looks like only very strong data or very weak numbers can give the USD support. Tomorrow, we conclude the week with the University of Michigan Consumer Sentiment report.
