EUR/USD consolidates near high in risk on markets with Fed Powell on focus

• Risk appetite is driving markets, and keeping Euro downside attempts limited.
• A sharp decline in Oil prices is giving additional support to the common currency.
• EUR/USD has broken the top of a bullish flag formation and aims for 1.1630 and 1.1700.

The EUR/USD has been moving in a tight range around 1.1600 on Tuesday's European session, buoyed by a risk appetite, despite accusations of ceasefire violations in the Middle East. The pair had jumped about 1.30% from the previous day's lows following the announcement of a truce in the Middle East and holds gains with all eyes on the Federal Reserve's (Fed) Chairman Jerome Powell's testimony to Congress.

Israel accused Iran of launching missiles into their territory in violation of the ceasefire and threatened a strong response to the Islamic Republic. Tehran has denied the accusations. Risk appetite has faltered somewhat, Oil prices have trimmed some losses, but the US Dollar remains depressed.

Crude prices are dropping nearly 3% so far on Tuesday, following a nearly 13% sell-off on Monday, with the barrel of WTI returning to $63.00 from above $77.00. The decline in Oil prices gives some respite to the Eurozone, as Europe is a net Crude importer, and expensive Oil would add inflationary pressures on a weakening economy.

With geopolitical tensions easing, Fed's Powell's Semiannual Monetary Policy Report to Congress, at 14:00 GMT, will attract the focus. Investors are eager to see whether the Fed chief maintains his wait-and-see stance in the face of the increasing voices calling for a rate cut among the central bank officials.

Daily digest market movers: Risk appetite sends the US Dollar tumbling

• Markets are going through a relief rally. The announcement of the ceasefire between Israel and Iran has dissipated fears of a full-blown war in the region, triggered by the involvement of the US during the weekend. The US Dollar Index, which measures the value of the USD against the six most traded currencies, has dropped more than 1% since the ceasefire was announced, giving away most of the ground gained over the last two weeks.
• Iran launched missiles at Israel, killing four, after an attack on a US military base in Qatar, which did not cause injuries. The Iranian Foreign Minister affirmed that Tehran will only stop its attacks when Israel ceases its airstrikes. Investors, however, are celebrating the agreement as a done deal.
• On the macroeconomic front, the German IFO Business Climate Index increased to 88.4 in June from 87.5 in May, slightly above the 88.3 expected. Business expectations have also improved, to 90.7 from the previous 88.9, beating expectations of a 90.0 reading. The impact on the Euro, however, has been minimal.
• In the US, the highlight is Fed Chairman Powell's Semiannual Monetary Policy Report to Congress, due on Tuesday and Wednesday. The central bank's chief will be questioned about the bank's plans to deal with a context of weakening growth and higher inflationary pressures. His comments will be observed with interest after the recent dovish calls by both Bowman and Waller.
• Investors have ramped up bets on a Fed rate cut in the coming months following recent Fedspeak. Futures markets are now pricing a 22% chance of a July cut, up from around 14% last week, while expectations of a September cut have increased to above 80% from below 70% last week, according to the CME Group's Fed Watch Tool.
• Eurozone data released on Monday showed that business activity remained broadly steady in June. The preliminary Manufacturing and Services PMIs came in roughly at the same levels as in the previous month at 49.4 and 50.0, respectively. The Euro retreated after the data release as investors had expected slightly better results.
• In the US, the preliminary S&P Global PMIs beat expectations. The Manufacturing PMI remained steady at 52 in June, against expectations of a slowdown to 51, while the Services PMI eased to 53.1 from the previous 53.7, still better than the 52.9 reading forecasted by the analysts.

EUR/USD breaks higher and sets its focus at the 1.1630 high

EUR/USD has broken above the top of the last few weeks' corrective channel, boosted by a favourable market sentiment with bulls focusing on the June 12 high at 1.1630.

The breach of the trendline resistance at 1.1540 highlights a bullish flag formation, whose measured target is located at the 1.1700 area, where the 127.2% Fibonacci extension of the June 10-12 rally lies.
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On the downside, a bearish reaction from these levels might seek support at the reverse trendline, now around 1.1535, before rallying further. A confirmation below that level would cancel the bullish view and bring the June 19 and June 22 low at 1.1445 back to the focus.