EUR/USD Forex Signal: Short-Term Relief Rally Expected

The pair will likely keep rising as investors target the key resistance at 1.0650. 

Bullish View

• Buy the EUR/USD and a take-profit at 1.0650.
• Add a stop-loss at 1.0450.
• Timeline: 1-2 days.

Bearish View

• Set a sell-stop at 1.0480 and a take-profit at 1.0390.
• Add a stop-loss at 1.0550.

The EUR/USD pair rallied to the highest level since May 11th ahead of the upcoming Euro area consumer inflation data. It rose to a high of 1.0560 as investors price in a more hawkish European Central Bank (ECB). The pair has risen by almost 20% from its lowest level this year.

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EU Inflation Data Ahead

The euro rose against the US dollar after more ECB officials pointed to more interest rate hikes. In a statement last week, the head of the German Central Bank made the case of a rate hike in July. Further, in a separate statement, Christine Lagarde said that she was leaning towards a rate hike in July.

The loudest voice came on Tuesday when the head of the Dutch central bank said that the bank should consider a 0.50% rate increase in July. If this happens, it will be the biggest single interest rate hike that the bank has implemented ever.

Therefore, the EUR/USD pair will react mildly to the latest inflation data that will come out today. Economists expect the data to show that the bloc’s CPI rose to 7.5% in April while core CPI rose to 3.5%.

While these numbers are important, they will likely be similar to the preliminary data that Eurostat published two weeks ago. As such, they will not have a major impact on the EUR/USD pair.

The pair also rose even after the relatively strong US retail sales numbers. The data revealed that the headline retail sales rose to 8.19% year-on-year and by 1.0% on a month-on-month basis. These numbers were better than what analysts were expecting. Core retail sales rose by 0.6%., signaling that consumer spending was rising.

Other data showed that the country’s manufacturing and industrial production numbers rose by 0.8% and 1.1% in April.

EUR/USD Forecast

The EUR/USD pair invalidated the bearish flag pattern that was forming on the four-hour chart. Now, it has managed to cross the 25-day and 50-day moving averages while the Relative Strength Index (RSI) is approaching the overbought level. The Stochastic Oscillator moved above the overbought level.

A closer look shows that the pair retested the tip of the triangle pattern shown in pink. Therefore, the pair will likely keep rising as investors target the key resistance at 1.0650. The alternative scenario is where the pair drops below 1.0440.