Is EURUSD primed for a reversal? Technical analysis says it is

Incoming data on the US economy and the Fed's rhetoric pushed greenback higher to a new local high (105 on DXY). Dollar demand also rose against the backdrop of increasing geopolitical risks - in particular, China issued a statement condemning certain features of US foreign policy, in which the market considered its readiness to increase its support for Russia. February and March are seasonally strong months for the dollar, and overnight deposit rates of 4.50% make the dollar an attractive asset for investors.Since the start of the February, the Chinese yuan has slipped 3% and has come close to the key resistance level at 7.00. This suggests that China's much-touted reboot after the pandemic is not going as smoothly as many would expect. In addition, the idea that 2023 will be the year of disinflation, that was the part of the Powell message at FOMC press-conference in January, seems less and less plausible, because the incoming data suggests the opposite. In general, the main theses of cheap dollar in 2023 are in danger of becoming irrelevant.Today, the release of Core PCE became a large shock for the market. Inflation, contrary to expectations of a decrease, accelerated from 4.4% to 4.7%, while in monthly terms, the price level increased by 0.6%, compared to forecast of 0.4%:SPX futures fell to 3960 points, the NY session began with aggressive sales and the main US stock market indices lost an average of 1.5%. The 2-year Treasury rate soared to 4.8%, and the 10-year Treasury to almost 4%. It is becoming abundantly clear that the Fed's disinflation narrative is not supported by the incoming data, and the market is now pricing in at least two federal funds rate hikes.From the positive aspects of the price data for the US - the growth of household spending exceeded the forecast and amounted to 1.6%.In the Eurozone, by the way, we also seen upward revisions of inflation, to 5.3% in annual terms. Not surprisingly, ECB officials such as Isabelle Schnabel are eager to debunk any suggestion that the process of disinflation has begun. And the mainstream view, which is slowly creeping into the market, is that the ECB may have to tighten policy by another 100 basis points, but crucially, the central bank will keep rates at these high levels for much of 2024. This is now the main hope for EURUSD buyers, which does not allow the pair to weaken too fast.A little later today, the Michigan Household Sentiment Index will be published. The index is expected to rise slightly, however, given the re-acceleration of inflation in the US, there is a risk of a negative change.As expected earlier, EURUSD has broken the trend line and looks poised for the 1.05 test. The intensity of the breakout movement and the fact that a key level is approaching are the two main prerequisites for expecting a selling wave to fizzle out quickly. From the point of view of supply and demand, near 1.05, strong support from medium-term buyers is expected, in addition, large players who sold EURUSD from the level of 1.10 will most likely take profits on short positions. All together, this forms an almost ideal reversal scenario: