The European Central Bank has recently managed to assure investors that it will continue to tighten the parameters of its monetary policy, as inflation is still high, and is not slowing down as quickly as desired. At the same time, ECB representatives recognize the negative consequences of rising interest rates, but still believe that high inflation is much more damaging. So when choosing between two evils, they would choose the less harmful one. This stance is the main reason why the euro has been steadily rising in the last few days. However, market sentiment took a complete turn on Friday. According to preliminary estimates, the headline inflation rate dropped from 8.5% in February to 6.9%, which was noticeably lower than the expected 7.4%. So inflation in Europe began to fall much faster. This caused a momentary reassessment of expectations and positions, as a result of which the euro fell. At the moment, investors are likely to take a short break to calm down and recover. Moreover, the macroeconomic calendar is pretty empty today, which might support the market consolidation.

Inflation (Europe):

EUR/USD bounced from the area of the local high of March 23, the value of 1.0930. As a consequence, there was growth in the volume of short positions, and the quote fell to 1.0800.

On the four-hour chart, the RSI downwardly crossed the 50 middle line, thus reflecting bearish sentiment among traders.

On the same time frame, the Alligator's MAs changed direction, which corresponds to the current price rebound. However, when looking at the overall cycles of the indicator's movement, the bullish sentiment persists.

Outlook

Movement by more than 130 pips may have caused excessive short positions in the short term charts. This, in turn, allows a technical pullback or stagnation relative to the recent decline. Take note that keeping the price below 1.0770 in the four-hour chart can strengthen the bear cycle, in which speculators can ignore the euro's oversold conditions.

The complex indicator analysis points to a downward cycle in the short-term and intraday periods. Meanwhile, in the medium term, indicators point to an upward cycle.