EUR/USD Holds Gains Ahead of US CPI Release, Bearish Outlook

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As I write this, the EUR/USD pair is trading with moderate gains near the 1.1042 level. Today, the market’s focus is squarely on the eagerly anticipated US Consumer Price Index (CPI) report. The outcome of this data release could have a significant impact on the next directional move for the pair.

A key factor supporting the EUR/USD's current levels is the weakness in the USD/JPY observed yesterday. The US dollar exhibited softness against the Japanese yen, providing some temporary relief to the euro. However, despite these short-term gains, the upside potential for EUR/USD seems capped due to ongoing **dovish expectations from the European Central Bank (ECB)**. Many traders anticipate that the ECB may adopt a more cautious stance in the coming months, limiting the euro's ability to rise further.

All eyes now turn to the US CPI data, which is expected to provide important clues about the Federal Reserve's next steps regarding interest rates. A higher-than-expected CPI reading could trigger renewed strength in the US dollar, putting pressure on the EUR/USD pair.

From a technical standpoint, our view on EUR/USD remains bearish. Last week, we successfully hit a Take Profit level with a 1% reward, taking advantage of the pair’s downside momentum. The rejection from a key Supply Area aligns well with our COT report analysis, which shows that retail traders are still largely bullish. However, this bullish sentiment from retail traders often signals the potential for further downside.

Additionally, we are keeping a close eye on a potential bearish seasonality trend, which could further contribute to the euro's weakness. This seasonal pattern, combined with the rejection at the supply zone and positioning data from the COT report, leads us to expect that the EUR/USD may continue to experience a push downward in the near term.

In summary, while EUR/USD is seeing some gains today, the overall technical and fundamental outlook remains tilted to the downside. The US CPI data could act as a catalyst for the next move, and we remain cautious of any significant rally due to the combination of bearish seasonality, dovish ECB expectations, and continued strength in the US dollar.

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