EUR/USD Price Analysis: Upside remains capped below 21-DMA

• EUR/USD stalls a three-day recovery rally as the USD springs back to life.
• ECB’s Knot fuels bullish wedge breakout but 21-DMA will be a tough nut to crack for EUR bulls.
• Immediate support is seen at 1.0488, as the focus shifts to Eurozone inflation.

EUR/USD is trading on the backfoot below 1.0550, having fresh multi-day highs at 1.0564 earlier in the Asian session.

The latest retreat in the major could be linked to the deteriorating market mood, which has revived the US dollar’s safe-haven appeal. Softer Chinese data and concerns over the aggressive Fed tightening outlook spooked investors.

On Tuesday, EUR/USD’s recovery rally found extra legs after ECB Governing Council member Klaas Knot said that a 50-basis points rate hike should not be excluded if data in the next few months suggest that inflation is broadening and accumulating.  

The pair shot through the 1.0500 barrier on these above comments, as it recaptured the 1.0550 level. EUR bulls also cheered the upward revision to the Euro area GDP score, as the greenback accelerated its corrective downside.

Looking ahead, the dollar price action and the persistent market sentiment will impact the currency pair ahead of the Eurozone HICP final revision.

As observed on the daily chart, EUR/USD has stalled its recovery rally just below the bearish 21-Daily Moving Average (DMA) at 1.0575.

The 14-day Relative Strength Index (RSI) has turned flattish after the latest rebound from lower levels, justifying the renewed weakness in the main currency pair.

Should the selling pressure intensify, EUR bears could challenge the wedge resistance now turned support at 1.0488.

Further down, Tuesday’s low of 1.0428 could be retested.

EUR/USD: Daily chart

Note that Tuesday’s upsurge prompted EUR/USD to yield an upside breakout from a falling wedge formation, adding credence to the ongoing recovery from five-year lows of 1.0350.

If EUR bulls regain control, then the immediate resistance will be seen at the daily highs of 1.0564, above which the 21-DMA will get tested.

Acceptance above the latter is needed to confirm a bullish reversal in EUR/USD.

EUR/USD: Additional levels to consider