EUR/USD consolidates ahead of US inflation data

EUR/USD ended the week at 1.1868, remaining within a narrow sideways range for the fourth consecutive session. The market has adopted a wait-and-see approach ahead of the release of January's US consumer price index. The report could influence expectations for Federal Reserve policy.

Forecasts suggest a slowdown in headline inflation to 2.5% year-on-year from 2.7%, while core inflation is expected to ease to 2.5% from 2.6%.

Earlier in the week, strong employment data confirmed the resilience of the labour market, although recent jobless claims came in higher than expected. Investors are now pricing in rates remaining unchanged in March, followed by two 25-basis-point cuts in the second half of the year, in June and September.

The broader backdrop for EUR/USD remains clear: most Fed officials have adopted a wait-and-see stance and are not ready to resume rate cuts imminently. Despite previous easing and the current rate range of 3.50-3.75%, inflation remains below 3%, and the economy continues to demonstrate stability. January's employment data only strengthens the case for a pause.

While some Fed policymakers support further easing, they remain in the minority. The market is shifting expectations for the first cut closer to July. For EUR/USD, this maintains structural support for the dollar. The pair's next move will depend on inflation and signs of a real cooling in the US economy.

Technical analysis

On the H4 chart, EUR/USD remains in a sideways consolidation phase following January's upward momentum. The price is held within the 1.1785-1.1930 range and is currently trading near 1.1870. Bollinger Bands have narrowed, signalling declining volatility. The MACD is hovering near the zero line, indicating weak momentum, while the Stochastic oscillator remains neutral, without a clear directional signal. The market is trading in the middle of the range.

On the H1 chart, price action reflects a tight consolidation with occasional volatility spikes. Buyers quickly absorbed the latest downward move, but attempts to break above 1.1925 have failed. The price has stabilised near the midline of the Bollinger Bands. The MACD remains close to zero, and the Stochastic oscillator is turning lower in neutral territory. In the near term, range trading remains the preferred strategy.

Conclusion

In summary, EUR/USD remains in a state of consolidation, trapped in its narrowest range in weeks as markets await the crucial US inflation report. The pair is caught between two opposing forces: resilient US economic data and delayed Fed easing expectations (supporting the dollar), versus a relatively hawkish ECB stance and already priced-in policy divergence (supporting the euro).

Technically, compressed volatility and neutral indicators signal a breakout may be approaching, but its direction will depend entirely on tonight's CPI outcome. A hotter-than-expected inflation reading would likely push the pair towards the lower boundary at 1.1785, while softer inflation could trigger a retest of resistance near 1.1930. Until then, the range remains the game.