Following the announcement of US inflation data yesterday, the EURUSD currency pair has predictably faced downward pressure. US inflation rose to 3.1% year-over-year, surpassing the anticipated 2.9%, albeit slowing from 3.4%. Core inflation remained steady at 3.9%, defying expectations of a decrease to 3.7%. Consequently, the US dollar strengthened as the market recalibrated expectations regarding the Federal Reserve’s rate cut timeline.
Meanwhile, in the Eurozone, domestic data failed to sway the currency pair’s trajectory. GDP estimates aligned with forecasts, offering little support, and as the pair experienced a 0.6% decline on Tuesday, the stage is set for a third consecutive day of losses.
Technical
On the 4H chart, a falling wedge has formed, with the price action currently hovering around the dynamic support of the wedge. The RSI lies at oversold conditions, leaving the door open to a bullish breakout if the price can clear the prior demand zone near 1.0723.
Clearance of the demand zone could lead the currency pair toward the dynamic resistance of the wedge, making it vulnerable to a breakout. Resistance at 1.0758 could be the first hurdle to clear, backed by the 25-SMA (green line) and 50-SMA (blue line). With such strong resistance, a pullback could occur here to test the sustainability of the breakout. If the retest holds, the price could move toward 1.0798 in the longer term.
However, if the price fails to clear the previous demand zone, it could remain under its bearish spell. Support at 1.0681 then becomes the last line of defence to a prolonged downtrend that could see the pair reach 1.0646 in the upcoming sessions.
Summary
Following the US CPI release on Tuesday, the EURUSD currency pair has been under bearish influence. However, the formation of a falling wedge provides the potential for a bullish breakout to occur in the upcoming sessions if the price can clear the support-turned-resistance at 1.0723.
Sources: Koyfin, Tradingview
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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