Rising wedge points to more downside

The EUR/USD pair slipped to the lowest level since May 27th even after the latest Eurozone consumer inflation data. It fell to a low of 1.0687, which was lower than this month’s high of 1.0786.

EU consumer inflation data

Consumer prices in the European Union are growing at a rapid rate as the cost of energy and food rose sharply. According to Eurostat, the headline consumer price index (CPI) rose from 0.8% in April to 0.8% in May. This increase was higher than the median estimate of 0.6%. The price of a typical shopping basket rose from 115.11 euros to 116.07 euros.

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The rising consumer inflation translated to a year-on-year gain of 8.1%, which was also higher than the median estimate of 7.4%. This was also higher than the estimated 7.7%. 

Most countries in Europe are seeing inflationary pressures. For example, in Italy, the country’s inflation rose frm 6.0% to 6.9% while in France, it rose from 4.8% to 5.2%. 

The situation will likely get worse now that the European Union is debating about whether to ban Russian natural gas. This would lead to substantial costs since most countries in the bloc receive most of their gas from Russia. Earlier on, countries voted to partially place an embargo on Russian oil.

The EUR/USD pair also declined after the latest German employment numbers. According to Destatis, the country’s unemployment rate remained unchanged at 5.0% as the number of unemployed people rose to 2.26 million.

These numbers will put pressure on the European Central Bank (ECB) to accelerate its tightening policies. In a note on Monday, the bank’s Chief economist said that the bank was inclined to hike rates by 0.25% starting from July.

EUR/USD forecast

Turning to the hourly chart, we see that the EUR/USD retreat was inevitable since the pair was forming a rising wedge pattern. It managed to move below the lower side of the wedge pattern. 

Also, the pair retreated below the 25-period and 50-period moving averages while the Relative Strength Index (RSI) has moved below the oversold level. The pair will likely keep falling as bears target the support at 1.0600.

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