The EUR/USD pair commences the week at approximately 1.1433. Investors are persistently evaluating the circumstances in the Middle East, characterised by elevated levels of uncertainty. Oil prices experienced a downward correction after a significant increase at the beginning of the week, prompted by reports indicating that the United States and Iran plan to persist with peace negotiations. Simultaneously, renewed mutual strikes between the parties have intensified concerns that the conflict may re-enter an escalation phase, casting doubt on the viability of sustaining the ceasefire. Renewed hostilities have reignited concerns regarding a potential resurgence of inflation in the market, bolstering anticipations of additional monetary tightening by the Federal Reserve. Markets currently assess the likelihood of a rate hike in September at around 62%, an increase from 58% the previous week, although this figure surpassed 70% earlier in the week.
Additional attention has been drawn to comments from New York Federal Reserve President John Williams, who noted that one of the key drivers of inflationary pressure in the United States remains demand growth, linked to developments in artificial intelligence technology. The primary focus of the week will be the publication of the US June consumer price index. Higher-than-expected figures would bolster expectations that the Fed will uphold a stringent policy stance, potentially lending support to the dollar. Conversely, weaker-than-forecast CPI data would exert downward pressure on the US currency, as markets would start to anticipate a return to a more accommodative monetary policy stance. On the H4 chart of EUR/USD, the market has established a consolidation range centred around the 1.1410 level, currently spanning from 1.1388 to 1.1410. A consolidation range around this level appears to be nearing completion.
An upside breakout would indicate the emergence of a corrective wave targeting 1.1450, subsequently leading to a decline towards 1.1260. A direct downside breakout would open potential for a downward wave to 1.1260. Technically, this scenario is confirmed by the MACD indicator; its signal line is above zero but pointing strictly downwards, reflecting continued bearish momentum with the potential for the trend to continue lower. On the H1 chart, the market has achieved the subsequent growth wave, reaching the 1.1412 level. A consolidation range is presently taking shape beneath this level. Today, a range expansion is anticipated, with a lower boundary at 1.1366 and an upper boundary at 1.1400, subsequently leading to a decline towards 1.1260. Technically, this scenario is corroborated by the Stochastic oscillator; its signal line is positioned above 50 and is trending upward towards 80, prior to an anticipated decline to 20.
EUR/USD is holding steady at the beginning of the week as markets anticipate crucial US inflation data that may influence the Federal Reserve’s policy direction. Geopolitical uncertainty in the Middle East persists at a high level, characterised by conflicting signals: renewed peace talks juxtaposed with fresh military strikes, which continue to maintain a cautious stance among investors. Inflation expectations have been bolstered by rising tensions, leading to an increase in the probabilities of a rate hike in September, even in the face of a mid-week decline. Comments from NY Fed’s Williams on AI-driven demand as an inflation factor have introduced an additional layer to the ongoing discussion. Attention is focused on the upcoming CPI release on Wednesday: a robust figure may strengthen the dollar, whereas a disappointing result could alleviate pressure on the euro. Technically, the bearish outlook for EUR/USD persists, with downside potential targeting 1.1260 in the medium term.