EUR/USD Forecast: US inflation puts USD in sell-off mode

EUR/USD Current Price: 1.0334

• US inflation contracted by more than anticipated in July, surprising market players.
• Chances of a Federal Reserve aggressive tightening decreased sharply with the news.
• EUR/USD trades at its highest in over a month with strong bullish momentum.

The EUR/USD pair soared following the release of US inflation data, trading at its highest in over a month, around 1.0340. After pausing for most of the week, financial markets entered risk-on mode, on news prices pressures may have finally reached a top in the US. According to the official release, the annual Consumer Price Index contracted from 9.1% to 8.5%, better than the 8.7% expected. Furthermore, the core reading, which excludes food and energy prices, remained steady at 5.9%, better than the 6.1% expected.

Stocks soared with the news in pre-opening trading, with the DJIA adding over 400 points. Government bond yields plunged, while demand for the greenback collapsed, as market participants are now pricing in a less aggressive US Federal Reserve.

The scenario is set, and it seems the greenback will remain under selling pressure through the upcoming sessions.

EUR/USD short-term technical outlook

The EUR/USD pair approaches 1.0360, the 61.8% retracement of its latest daily slump, with a clear bullish momentum that hints at a bullish breakout. In the daily chart, technical indicators head firmly higher within positive levels, while the pair advanced further above a bullish 20 SMA, which now converges with the 38.2% retracement at 1.0205.

In the near term and according to the 4-hour chart, technical indicators head north almost vertically, with the RSI entering overbought levels, in line with the ongoing run. Also, the pair has broken above all of its moving averages and the critical 50% retracement at 1.0280. As long as the pair holds below the latter, the risk will remain skewed to the upside.

Support levels: 1.0310 1.0280 1.0240

Resistance levels: 1.0360 1.0395 1.0440

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