EUR/USD staged a rally that pushed the pair above its 21-day moving average to a five-session high, but the advance faltered as buyers failed to sustain the upward momentum. This loss of steam has generated technical warning signs pointing to potential downside risk, particularly with key U.S. inflation data due next week.

Adding to the bearish tone, fresh technical signals appeared on the daily chart, including a bearish RSI divergence at today's peak and the formation of an inverted hammer candlestick pattern. These new signals reinforce pre-existing bearish indicators, namely the rising channel pattern on daily charts and a monthly chart structure suggesting the pair is merely consolidating its decline from June's monthly high rather than reversing it. Meanwhile, Bollinger Bands on the monthly timeframe have narrowed over a 15-month period, hinting the pair could stay rangebound—though this could change quickly if U.S. CPI data injects fresh volatility.

Market expectations point to June core CPI ticking up to +0.3% month-on-month from +0.2%, with the year-on-year rate holding steady at 2.9%. A stronger-than-expected reading would likely boost the dollar, yields , and rates on expectations of a more hawkish Fed, potentially driving EUR/USD below the rising channel's base and June's low, triggering stop-losses and pushing the pair toward support near 1.1050-1.1100. Conversely, a softer CPI print could weaken the dollar and rates, lifting EUR/USD and possibly invalidating the bearish technical setup.
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)