Euro Soars Amid Inflation Cool-Down in U.S.
EUR/USD Takes Flight: Major Resistance Shattered.
This past week was quite the roller coaster for the EUR/USD, which skyrocketed nearly 2.5% to reach its highest point since February 2022. In fact, it marked the pair’s most impressive weekly performance in about eight months.
Why this robust rally, you ask? Well, the mighty Euro was flexing its muscles mainly due to the U.S. dollar looking a little under the weather. This came on the back of U.S. Consumer Price Index (CPI) and Producer Price Index (PPI) data, which didn’t quite hit the mark. Essentially, these metrics indicate that the pace of price increases in the U.S. economy is chilling out quicker than originally expected – and that’s music to the Fed’s ears.
In the wake of this promising inflation news, the market went into a bit of a rethink about the Federal Reserve’s path for increasing interest rates. The betting odds for a small rate hike at the Federal Reserve’s meeting this month didn’t really change and are still above 90%. However, traders were less keen on bets of an extra 0.25% rate bump in September. So, it’s starting to look like the central bank might soon wrap up its cycle of rate hikes.
With no big news on the horizon over the next few days, and the Federal Reserve set to go radio silent ahead of its July 25-26 meeting, there’s nothing obvious that could tip the scales in favor of the U.S. Dollar. So, while the EUR/USD might have some room to continue its recent climb, it might be wise to bear in mind that its momentum could be capped given the current overbought conditions in the foreign exchange market.
Key Data for the Week Ahead
Looking to next week, it’s going to be a bit quiet on the economic news front. For the U.S., the one to watch will be the June retail sales report due out on Tuesday at 12:30 pm GMT.
Over in the Eurozone, the June CPI data might garner some attention, but it’s unlikely to cause any major waves. This is because it’s the second and final estimate, which usually doesn’t differ much from the preliminary report. The release is scheduled for Wednesday at 9:00 am GMT.
Technical Outlook – EUR/USD
The EUR/USD pair has impressively punched through the 1.1175 resistance level and is currently trading at around the 1.1240 mark. However, caution is advised as the Relative Strength Index (RSI) suggests the pair is now overbought, hinting at a possible pullback soon.
Meanwhile, the expansion of Bollinger Bands signifies that momentum is picking up. Usually, an asset continues on its current path as long as the bands are moving in opposite directions. When they start to converge and the RSI is still overbought, EUR/USD will likely start a retracement.
