Recent data and central bank policy expectations suggest that the euro's 4.2% bounce last month may have ended.
A return to the primary downtrend looks viable, with a top in place at the May 30 EUR/USD high of 1.0787, which marks 38.2% of the 2022 decline.
As the Ukraine conflict and inflation pressures hit the euro zone economy, reflected in soft German retail sales nL8N2XO105and EZ PMIs nL8N2XN1ZM on Wednesday, U.S. jobs and manufacturing data remains resilient nL1N2XO186, supporting the U.S. dollar.
EZ inflation continues to hit record highs nL8N2XN337, but opinions on a policy response remain mixed within the European Central Bank, with ECB President Christine Lagarde advocating a gradual approach to monetary tightening. nL1N2XN0DF
The Federal Reserve on the other hand is primed to hike rates aggressively, which is positive for the USD.
Fed President James Bullard called for rates at 3.5% at year-end nL1N2XO1MC and Mary Daly 2.5% nL1N2XO1HO on Wednesday.
The May EUR/USD rebound stalled at 38.2% of the 2022 fall, which is the classic initial technical trend pivot level.
The subsequent dip opens the door to the return of the primary 2022 downtrend. Five, 10 and 21-day moving averages conflict, while momentum studies crest or fall which is a neutral setup.
A close below the 1.0594 21-DMA would confirm that a top is in place at 1.0787 and open the door to a test of 1.0349, the May low and 2022 trend base.
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