EUR/USD eased to about 1.1455 in early European trade on Thursday after two days of gains, as markets waited for Germany’s flash HICP inflation data for July and preliminary Q2 GDP readings for Germany and the Eurozone. Consensus has Germany’s headline HICP accelerating to 2.8% YoY from 2.4%, while the monthly rate is seen rising 0.8% after a 0.2% fall in June, data that could influence expectations for European Central Bank policy.
The pair advanced on Wednesday after the Federal Reserve kept rates unchanged at 3.50%–3.75% for a fifth consecutive meeting, while flagging upside inflation risks. In technical terms, EUR/USD was holding above its 20-period EMA at 1.1422, with a Double Bottom pattern on the daily chart and the RSI (14) moving into the 40.00–60.00 band from 20.00–40.00. Resistance is marked at 1.1483, with potential follow-through towards 1.1557, while supports sit at 1.1422 and the July 28 low of 1.1353.
Technical Setup and Trading Strategy
We suggest that derivative traders prepare for an upward swing in the EUR/USD pair in the coming weeks, as a bullish double-bottom pattern has formed on the daily chart. With the pair currently trading near 1.1455, we are closely watching the 1.1483 resistance level as the key trigger for breakout buyers. If the price sustains above the 20-period exponential moving average at 1.1422, we recommend building long positions or purchasing call options to target the 1.1557 mark.
Macro Drivers and Risk Management
This bullish bias is heavily supported by today’s flash German inflation data, which is expected to heat up to 2.8% year-on-year. Hotter inflation in Europe’s largest economy will likely force the European Central Bank to keep interest rates higher for longer, driving capital into the Euro. Historically, when Eurozone inflation spikes unexpectedly above forecasts, the Euro has gained an average of 0.5% to 1.2% against the Dollar in the subsequent two weeks.
Meanwhile, the Federal Reserve’s decision yesterday to hold rates steady at 3.50%-3.75% has capped the Dollar’s strength, despite their warnings of upside price risks. We advise options traders to utilize bull call spreads to limit risk while positioning for this expected move toward 1.1557. To protect these positions, we should set tight stop-losses or exit triggers if the pair falls back below the key support level of 1.1353.
