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EURUSD could drop to 1.1704

Yesterday, the euro, like all other global currencies, fell sharply against the dollar. The EURUSD pair, after rallying to 1.1875 in the morning, broke through the 1.1781 support level by the end of the day, retracing to its April 5 low.

Upside in the dollar was driven by the US June inflation report, which overshot all median expectations by the pundits. The CPI, stripped of volatile food and energy products, shot up 0.9% against the previous month, although experts had predicted an increase of only 0.4%. The same indicator showed a 4.5% YoY increase, although experts had expected a rise of only 4.0%. The market decided that this acceleration in inflation would compel the Fed to taper monetary policy faster than previously thought. The end game of this release was a rally in the dollar.

On Wednesday, the pair has tried to pare some losses, rising to 1.1795, but then sank near the 1.1781 level that was breached the day before. This evening, Fed Chair Jerome Powell is scheduled to deliver testimony before the US Congress on the economy and monetary policy. The markets will be watching his speech closely. Any hawkish overtones in light of the latest inflation reading will push the dollar higher. In this case, the EURUSD pair will likely sink to 1.1704.

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