Eyes on EURUSD going into European inflation data

After surging close to 4% since early July off the back of a weakening USD, the EURUSD pair has stabilised around $1.123. With very little volatility seen this week in the pair, eyes now turn to the euro, as the European inflation data is set to be released today.

Analysts are predicting a continued downward trend in inflation, with a Year-on-Year forecast of 5.50%, which is below May’s figure of 6.1%. If the inflation data comes in above forecasts, we may see a further increase in the EUR as investors move towards the potentially higher yields.

On the technical front, the tightening of Bollinger Bands on the 4-hour chart is something to watch. The lack of movement in the EURUSD pair throughout this week has led to exceptionally tight Bollinger Bands, with levels not observed on this timeframe since 2021. When Bollinger Bands contract significantly, it typically signifies a period of low volatility and suggests that a breakout or significant price movement may be on the horizon.

The Relative Strength Index (RSI) is also in overbought territory on multiple timeframes, including the daily. This might suggest there is room for a cool-off before a further continuation higher. However, with the European inflation data due today, the fundamental data might cancel out any technical signals.