EURUSD Bearish Reversal Setup ECB Dovish Shift & Falling Inflati

This EUR/USD Daily Chart shows a potential sell setup, built around technical resistance, Fibonacci levels, and macroeconomic expectations for the Eurozone.

1. Key Technical Elements:
Resistance Zone (1.16311):
The blue rectangle marks a strong resistance level, where price previously reversed. It aligns with the 100% Fibonacci extension level from the previous swing, indicating exhaustion of bullish momentum.

“Watch Price Action for Sell”:
A label warns traders to watch for bearish confirmation signals in this area (e.g., rejection candles, bearish engulfing, divergence, or volume drop).

Bearish Projection Path:
Two downward arrows suggest a potential multi-leg decline, starting with:

Target 1: 1.10797 (38.2% Fib level)

Target 2: 1.01766 (previous low, 100% measured move)

Volume Analysis:
Volume shows a decline at the highs, hinting at weak buying interest near resistance.

2. Fundamental Narrative: ECB Dovish Shift
🏦 ECB Rate Cuts Expected:
The European Central Bank (ECB) cut rates in June 2025, and further cuts are anticipated as economic momentum slows.

The ECB signalled a gradual policy easing path to stimulate growth, especially with core inflation falling.

📉 Inflation Trends:
Eurozone inflation has recently dropped below the 2% target, reducing pressure on the ECB to maintain restrictive monetary policy.

Lower inflation + dovish guidance = bearish for the euro, as rate differentials with the Fed may widen again.

🇺🇸 U.S. Outlook:
The Fed remains cautious with cuts due to sticky services inflation and strong labour data.

This divergence in central bank policy favours the USD over the EUR.

Trade Setup Summary:
Element Details
Entry Zone 1.1600 – 1.1630
Confirmation Bearish candlestick pattern or rejection at resistance
Target 1 1.1080 (short-term support, 38.2% Fib)
Target 2 1.0177 (previous low, full correction)
Risk Stop above 1.1650 zone (invalidates setup)

✅ Conclusion:
This setup aligns technical resistance with bearish fundamentals, making EUR/USD ripe for a potential medium-term downtrend. Keep an eye on ECB commentary, inflation updates, and U.S. macro data for validation.