EUR/USD Forecast: Ahead of US inflation, an inkling of the upside?

  • The EUR/USD is trading around $1.2335, little changed on the day and awaiting the all-important US inflation report.
  • The technical picture is almost fully balanced, but with an inkling of the upside.

The EUR/USD is trading in a narrow range between $1.2314 and $1.2351, but the ranges in recent hours were even narrower. ECB member Phillip Lane said there is no concern about the exchange rate of the Euro, bumping the pair a bit higher. 

Without any significant indicators released in Europe, the focus is firmly on the US inflation report, the main event of the week. The US is projected to announce the annual Core Inflation read of 1.8% in February. On a monthly basis, a small rise of 0.2% is projected, lower than 0.3% reported in January.

This is the last major publication before the Fed decision next week. A rate hike is all but certain in the March meeting, but the path of rate hikes going forward is unknown. The central bank publishes its dot-plot which pointed to three rate hikes in 2018 but Fed Chair Jerome Powell hinted it could be four. After wage growth fell back to 2.6%, a lot depends on the inflation figures.

Here are three scenarios for the event.

In the old continent, uncertainty looms over Italy's next government. At the moment, a mainstream coalition of right and left has been rejected by the center-left PD and the right-wing League. The common currency is not reacting to this uncertainty at the moment. Europe will release final inflation figures later on in the week.

EUR/USD Technical Analysis

The EUR/USD is trading above the 50-day Simple Moving Average that supports it at $1.2280, just above the March 5th low of $1.2270. Further support is at $1.2205, a mid-February low, and $1.2155, the March 1st trough.

Resistance awaits at $1.2360 which capped the pair in late February. Above, $1.2447 was the swing high on March 8th and $1.2555 is the 3-year high.

The technical picture is slightly positive as Momentum has turned positive and the RSI is gradually moving above the 50 point threshold, also indicating a bias for the upside.

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