EUR/USD: bearish continuation triangle in play, dollar catches a bid on strong US data

• EUR/USD drops heavily to test the  10-4hr SMA at 1.1703 on impressive US data.  
• EU/USD spread widens and favours dollar leg.
• A potential descending triangle  pattern being traced out on the chart – bearish.

The US dollar has picked up a bid as we progress through the North American session. Subsequently, EUR/USD has turned offered away from the European highs of 1.1745 and has made a fresh low of 1.1691 – although having slipped below the 21-hr SMA, the 10 4hr SMA is holding up while a stronger level of support comes between 1.1675/85 where the pair could be expected to hold.

EUR/USD could play out to be somewhat robust to this spike in the dollar considering EZ HICP inflation that arrived at 21 vs 2.0%. While the dollar has picked up a bid after a strong report in the US Conference Board Consumer Confidence arriving at 127.4 vs 126.0 expected, the data may only offer a short-term demand for the dollar leg of the pair if the broader theme kicks back into play, which in this case, are the expectations that the ECB is drawing near to the end of QE. That favours a tightening in the DE/US yield spread – something we had seen earlier on the EZ data prior to US Conference Board consumer confidence numbers.  

High EZ inflation rate should be taken with a grain of salt

However, while the inflation report was giving the euro a knee-jerk boost earlier today, because  energy effects are only temporary, the high inflation rate should be taken with a grain of salt from a policy perspective at the moment, as analyst at ING Bank argued, suggesting that the ECB will see through this data and instead concentrate on the EZ growth data that has weakened where the bloc’s economy grew by just 0.3% QoQ in the second quarter – “Any “behind the curve” thoughts that may have surfaced earlier this year can be parked,” the analysts proclaimed.  

EUR/USD levels

As noted, the pair is embarking on a strong level of support where the cluster of daily MAs are gathered – at 1.1675/80. However, a break there tilts the pair into more negative territory and while below 1.1790, 8th July highs, a bearish bias is assumed. For now, the 10-4hr SMA is also worth monitoring at 1.1703. However, as analysts at Commerzbank argue, attention stays on the 1.1510/08 recent lows and below here lies the 200-week ma at 1.1373:

“The pattern being traced out on the chart is a potential descending triangle. For this to stay valid, prices should remain below the resistance line – these patterns are bearish. Above here will argue for the possibility of a base pattern.”