EURUSD Reversal Looms as Oil Rally Faces Key Resistance Levels

On Tuesday, EURUSD continues to rebound from the lower boundary of the current bearish trend amid positive inflation signals and a slowing rally in oil prices:The final assessment of inflation in the EU for August revealed that core inflation remained unchanged, but overall inflation was revised down by 0.1% from the previous estimate to 5.3%. Last week, the European Central Bank raised interest rates. However, this decision was accompanied by a pessimistic revision of economic growth forecasts for the years 2023-2025 and warnings from Christine Lagarde, indicating that economic risks are predominantly skewed to the downside. Consequently, this led to a decline in the Euro against the US Dollar. By Tuesday, however, the price had nearly recovered from this decline.Considering that the bearish trend for this currency pair is forming quite distinctly (most market participants are likely to observe it on the charts), there are strong indications that the price will encounter resistance from sellers if it enters the range of 1.07-1.075, where the upper boundary of the trend channel is situated. As I previously mentioned, concerning a potential price reversal in the medium term, it is probable that the market will strive to reach the level where a reversal becomes more apparent, which is, of course, 1.05 – a significant psychological level that also corresponds to the year's lowest point. Given the evident correlation between the recent surge in oil prices and the depreciation of currencies in countries reliant on energy imports, including the EU, it is clear that a reversal in EURUSD will likely be preceded by a correction in the oil market. There are favorable conditions for such a scenario, as indicated by the chart below:As the chart shows, the price has already reached the upper boundary of the medium-term bullish channel. Furthermore, one can also consider the horizontal high from the fourth quarter of the previous year (approximately $100 per barrel). In general, the concentration of resistance points is increasing. In the $96-97 per barrel range, preparations for a medium-term reversal are likely to commence.The reversal in the currency pair will naturally be influenced by the stance of the Federal Reserve (Fed). I would like to remind you that the Federal Open Market Committee (FOMC) meeting is scheduled for tomorrow. While the market is not anticipating an increase in interest rates, there is uncertainty regarding the decision expected in November, which is viewed as the most likely time for another rate hike by the Fed this year. The primary focus will unquestionably be on the current dominant narrative regarding the duration of the period characterized by elevated inflation, often referred to as "higher for longer." Central bank officials do anticipate a decline in inflation, but they are concerned that the journey toward the target inflation level may be protracted. The markets, in general, appear to share these concerns, as is evident from the continued rise in yields on long-term bonds, both in the US and the EU, setting new highs, while short-term bond yields have hit their ceiling:Comments on this critical subject matter will predominantly impact the far end of the yield curve, that is, the yields on long-term bonds, and the US Dollar is highly sensitive to these fluctuations.