EUR/USD hit a new 9-day peak earlier today but a downside miss to euro zone May inflation and a bounce in U.S. Treasury yields now have the pair down on the session .
Daily technicals highlight downside risks as the daily cloud top capped the rally, RSI diverged and an inverted hammer forms.
Downside risks grow on the technicals and the subdued euro zone inflation likely resulting in a more dovish ECB meeting and presser from ECB President Draghi.
While EUR/USD's downside is currently vulnerable bears should tread with caution.
Potential Fed policy moves and options plays could trump a dovish ECB.
The downside miss to May manufacturing ISM follows a string of disappointing U.S. economic data and has resulted in higher odds of Fed rate cuts.
Sharp gains for eurodollar EDZ9 and fed funds futures FFZ9 price in a 12% chance of a Fed cut on June 19, while fully expecting a 25 bps cut September 19 FEDWATCH.
Chicago Fed's Evans said in a CNBC interview that policymakers have to pay attention to market signals .
Options suggest upside EUR/USD risks as strikes above 1.300 are bought while vol premiums for euro calls increase.
Potential Fed policy action and options markets suggest that any fall for EUR/USD should be short lived.
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