The EUR/USD currency pair has been slowly climbing higher over the past few days. Action in the Forex market has been relatively subdued this week compared to the end of last week. That may be about to change as the most important data release in the Forex market faces us later today – US CPI (inflation) numbers.
Nothing can move the Forex market like the US Dollar, and nothing can move the US Dollar (barring a surprise rate cut or hike by the Fed) like a surprise in a CPI (inflation) data release.
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Markets are reaching an important juncture for several reasons, all of which could affect the outlook of the EUR/USD currency pair:
The release of US inflation data today, which I have already mentioned. This could move the US Dollar.
Recent sharp corrections in the stock markets, coupled with a feeling that the incredible tech-driven stock market rallies may be wildly overbought, could trigger a risk-off flow into the US Dollar.
The confusing and volatile situation concerning a resolution to the conflict between Iran and the USA, and other involved nations or armed groups on either side. This could spook stock markets, or more directly send the price of crude oil soaring which could trigger a further inflationary shock which would be likely to lead to interest rate hikes, which in turn would affect the Forex market.
EUR/USD Technical Analysis
Broadly, since the London open on Monday at the start of this week, we have seen the price advance with higher lows, regaining some ground lost during earlier strong and fast downward price movements. There are some higher highs, but the picture there is more unclear. Both key support ($1.1500) and resistance levels ($1.1577) have held.
The US CPI data release is a huge event, and typically, unless there is somehow a belief that there will be a surprise result running through the market in the hours before it, the price tends to consolidate. So, we can expect the price to remain well between these levels before that time around the New York open. It looks quite likely that the levels will not even be tested.
What will happen after the CPI release will depend upon whether the data is a surprise or not. A surprise to the upside will send the price lower to test $1.1527; to the downside, higher to test $1.1577. Unless the surprises are especially dramatic, and if the price is far away from either level that it reaches before the release, it is quite possible that either level could hold.
My Take on EUR/USD
I won’t take any trade here before the US CPI data release. The thing to watch here is whether the annualised rate goes up to 4.2% or is higher or lower than that, and whether just by a tick or more. Unfortunately, this is not one of the times where it is obvious what would be likely to happen after that, beyond predicting a test of $1.1527 or $1.1577. Unless the surprise is big, I think either level would be likely to survive a test, so scalping a reversal at either level could be the way to go today. A test of $1.1500 would probably produce the best outcome with the strongest bullish bounce.
Review, Support & Resistance Levels
In my previous EUR/USD analysis on 8th June, I thought that the EUR/USD currency pair was likely to see the supportive area at $1.1500 hold, which it did, so that was a good call.
Risk 0.75%.
Trades may only be taken prior to 5pm London time.
Short Trade Idea
Go short following a bearish price action reversal on the H1 timeframe immediately upon the next touch of $1.1577.
Place the stop loss 1 pip above the local swing high.
Move the stop loss to break even once the trade is 20 pips in profit.
Take off 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to run.
Long Trade Ideas
Long entry following a bullish price action reversal on the H1 timeframe immediately upon the next touch of $1.1527 or $1.1500.
Place the stop loss 1 pip below the local swing low.
Move the stop loss to break even once the trade is 20 pips in profit.
Remove 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to run.
The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.
There is nothing of high importance scheduled today concerning the Euro. Regarding the US Dollar there will be a release of US CPI (inflation) data at 1:30pm London time.
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