The US Dollar is trading sideways on Wednesday, confined to a tight range across most currency pairs. This comes as no surprise following the uneventful semi-annual testimony from Federal Reserve Chairman Jerome Powell before Congress on Tuesday. His remarks echoed the Fed's latest rate decision, reinforcing a cautious stance to keep rates steady for an extended period to avoid premature cuts. The central bank's primary concern is that an early rate cut could stoke inflationary pressures, undoing the progress made so far.

In the absence of groundbreaking economic data, attention shifts to today's 10-year Treasury Note auction. Moreover, the day is peppered with appearances from three additional Fed members, along with Chairman Powell’s return to Congress.

Traders are also positioning themselves ahead of the June CPI data release scheduled for Thursday. The market consensus anticipates core inflation—excluding the volatile food and energy sectors—to have risen by 0.2% month-on-month and 3.4% year-on-year. The headline inflation rate is projected to decelerate to 3.1% from May's 3.3%.

This inflation data is pivotal. It will either validate or challenge current market expectations that the Federal Reserve might begin cutting rates as early as the September meeting. According to the Federal Funds Rate futures, there's a 70% probability of a 25-basis-point cut in September. However, the chances of a pause stand at 26.7%.

Examining the technical perspective of the Dollar, the trade-weighted index of the currency (DXY) is steadily moving towards the lower boundary of the significant ascending channel that has guided the dollar's recovery since the beginning of the year. A clear breakthrough below this line could potentially mark a strong signal that the bullish trend has reached its conclusion, signaling a shift towards bearish sentiment in the market:

The european currency remains buoyant amidst diminishing expectations of aggressive rate cuts by the ECB. The policymakers have refrained from committing to a predefined rate-cut path, wary that a too-loose policy could reverse recent disinflation trends. For example, Fabio Panetta, ECB governing council member and Governor of the Bank of Italy, emphasized the gradual reduction of interest rates without halting the ongoing disinflationary process. He highlighted that previous policy tightening continues to impact demand, output, and inflation, suggesting that the ECB's current stance is appropriately calibrated.

The EUR/USD pair is currently consolidating just below a critical resistance level around 1.0850, as shown in the chart. This consolidation occurs within the confines of a descending triangle pattern, delineated by a downtrend resistance line and an uptrend support line. The RSI indicator reflects a neutral stance, hovering near the 50 level, suggesting a lack of strong directional momentum presently. ECB rhetoric indicates a strategic effort by policymakers to steer market expectations away from anticipations of further rate cuts, thereby gradually aligning policy more closely with that of the Fed. This development clearly constitutes a bullish factor for the EUR, reinforcing a slightly bullish bias, with a near-term breakout scenario appearing more probable: