The EURUSD pair has had a busy twenty-four trading period, with the release of US CPI data and the European Central Bank rate decision and policy statement. Surprisingly, the price movement of the euro currency has been very limited over this time.
EURUSD traders may be digesting the massive 5.0 percent annual US CPI jump in June, which marked the highest CPI increase since 2008. Traders also learned that the ECB is expecting higher inflation own the road.
The combination of both the eurozone and the United States experiencing high inflation presents a dilemma for EURUSD traders. Given the growth prospects of both economies, the US dollar should be the clear winner.
However, with the Biden administration undergoing massive fiscal spending and the FED’s expanding balance sheet, it is clearly not so simple for traders and investors right now.
On the technical front the EURUSD pair was rejected from the top of a large rising wedge pattern earlier this week around the 1.2215 level. In the short-term this is a key technical area that bulls must reclaim in order to gain fresh momentum within the existing short and medium-term uptrend.
Potentially, sluggish trading action may be persisting due to the upcoming Federal Reserve policy meeting speak next week. Expectation of a taper are currently not in the markets mind, however, traders and investors are very cautious towards the FED’s policy language given the recent multi-month ramp up in US CPI inflation.
The ActivTrader market sentiment tool shows that 58 percent of traders are bearish towards the EURUSD right now. Bearish sentiment has dropped by around 4 percent since the start of the week, meaning that the negative skew is starting to wane. This could hint at more range bound trading ahead.
EURUSD Short-Term Technical Analysis
The EURUSD pair has been rejected from the top of a large wedge pattern across the four-hour time frame, placing more downside in focus for the pair while this remains the case.
Bears need to be very careful as selling interest is limited, and the EURUSD pair is starting to print higher lows in the short-term. While the 1.2100 level remains defended then more upside and an eventual breach of the 1.2215 level is possible.
It is possible that we could see more range bound trading until the Federal Reserve interest rate decision next week. Overall, watch for a big technical breakout once the 1.2100 to 1.2215 price range is cleared.
EURUSD Medium-Term Technical Analysis
The daily time frame shows that a head and shoulders pattern will be invalidated if the EURUSD pair revisits the 1.2330 price area, and a large, inverted head and shoulders pattern will then form instead.
Failure to overcome the 1.2330 price and it is possible that the EURUSD pair will fall back to the 1.2000 support level. Given the overall uptrend, my preferred scenario would see the 1.2330 level eventually being broken before the EURUSD tests 1.2000 again.