Tuesday's trading session was choppy due to end-of-month flows, sending the world's most popular currency pair up and then down as money managers' adjusted their portfolios. Choppy trading seemed to mask a significant development – eurozone inflation is rising and ECB hawks are taking notice. The headline Consumer Price Index for August hit 3% YoY and Core CPI reached 1.6% in the preliminary read for August, both above estimates. Higher inflation has reached the old continent and prompted both Klaas Knot and Robert Holzmann of the ECB to suggest the bank should reduce its bond-buying scheme. The Frankfurt-based institution is buying some €20 billion worth of bonds every week and these remarks triggered a sell-off in German sovereign debt, as well as that of other countries. Nevertheless, a hawkish shift in ECB policy is now in play for next week's decision, and that is a novelty. 

The Relative Strength Index (RSI) on the four-hour chart has dropped back below 70, thus exiting overbought conditions and allowing for more gains. EUR/USD continues benefiting from upside momentum and trades above the 50, 100 and 200 Simple Moving Averages. All in all, bulls are in control.

Some resistance is at the daily high of 1.1813, followed by 1.1830 and 1.1845, the latter being Tuesday's peak. Further above, 1.1860 and 1.1910 are eyed. Critical support awaits at 1.1780, which capped EUR/USD and later served as support. It is also where the 200 SMA hits the price. Further down, 1.1740, 1.1725 and 1.1695 are eyed. 1.1845 should be kept in sight because a break above would confirm 1.1900 as next target and also open doors for further gains as aforementioned. Lets not forget the Non Farm Payrolls event due this week which can bring alot of unwelcomed volatility in the market, dont fall for decisive breakouts until a fractal closing is found. At the moment EURUSD is losing grounds for strong bullish momentum and a minor shift on lower time frames from bullish to bearish can be found so on a shorter note we are going to sell EURUSD until a strong support is found for long term gains. 

EURUSD

Sep 01 2021

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