EUR/USD rose marginally on Monday as the dollar softened, but the euro could secure bigger gains if this week's highly anticipated U.S. inflation report cooperates.
The latest CFTC statistics indicate net-short euro positions were trimmed but only slightly, with investors remaining short despite EUR/USD's near 2.5% rally off the July 14 daily low.
Failure to make downside progress soon could lead investors to reduce short positions, potentially underpinning EUR/USD.
Technicals highlight upside risks, with EUR/USD consolidating gains off the July 14 low while trading in a 1.0100/1.0300 range.
Monthly RSI is deeply oversold and a monthly doji candle has followed July's bull hammer.
A break and sustained hold above the 1.0270/1.0300 zone would signal the end of consolidation, with EUR/USD likely to hit new trend highs.
July inflation data will determine if shorts get squeezed.
Estimates indicate a moderation for headline monthly and annual CPI as well as core monthly prices USCPF=ECI.
A downside surprise would signal inflation could be cooling faster than expected, softening the dollar and U.S. rates as investors anticipate a less aggressive Fed, potentially driving EUR/USD towards 1.0500.
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