opens the week around 1.1433. Investors continue to assess the situation in the Middle East, where uncertainty remains high. Oil prices corrected lower after a sharp rise earlier in the week, following reports that the United States and Iran intend to continue peace negotiations.
At the same time, new mutual attacks between the parties have raised fears that the conflict could once again enter an escalation phase, leaving prospects for maintaining the ceasefire uncertain.
The renewed hostilities have returned fears of a new wave of inflation to the market, supporting expectations of further monetary tightening by the Federal Reserve. Markets currently estimate the probability of a rate hike in September at around 62%, up from 58% the previous week, although this figure rose above 70% mid-week.
Additional attention has been drawn to comments from New York Federal Reserve President John Williams, who noted that one of the main drivers of inflationary pressure in the United States remains demand growth, linked to advances in artificial intelligence technology.
The main event of the week will be the release of the June consumer price index (CPI) in the US. Higher-than-expected figures would reinforce expectations that the Federal Reserve will maintain a tight policy stance, which could support the dollar. Conversely, weaker-than-expected CPI data would increase pressure on the US currency as markets begin to price in a softer monetary policy path once again.
Technical analysis
On the EUR/USD H4 chart, the market has formed a consolidation range around the 1.1410 level, which currently extends to 1.1388 and as high as 1.1410. A consolidation range around this level is practically complete. A bullish breakout would suggest that a corrective wave is developing to 1.1450, followed by a decline to 1.1260. A direct downside break would open the possibility of a bearish 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 completed the next wave of growth to the level of 1.1412. A consolidation range is currently forming below this level. Today, an expansion of the range to 1.1366 and 1.1400 is expected, followed by a fall to 1.1260. Technically, this scenario is confirmed by the stochastic oscillator: its signal line is above 50 and points strictly towards 80, before a subsequent drop to 20.
Conclusion
EUR/USD remains stagnant at the start of the week as markets await key US inflation data that could set the tone for the Federal Reserve's policy path. Geopolitical uncertainty in the Middle East remains high, with mixed signals (new peace talks on the one hand and new military attacks on the other) keeping investors cautious. Inflation expectations have been bolstered by escalating tensions, raising the odds of rate hikes in September despite a mid-week drop.
Comments by the New York Federal Reserve's Williams on AI-driven demand as a driver of inflation have added another dimension to the debate. All eyes are now on Wednesday's CPI release: a stronger figure could boost the dollar, while a weaker result would ease pressure on the euro. Technically, the bearish outlook for EUR/USD remains intact, with bearish potential towards 1.1260 in the medium term.
By RoboForex Analysis Department
Disclaimer: Any forecast contained herein is based on the author's personal opinion. This analysis cannot be considered trading advice. RoboForex assumes no responsibility for trading results based on the trading recommendations and reviews contained herein.
