EUR/USD Forecast: Euro could break out of weekly channel on US CPI

EUR/USD has extended its sideways grind above 1.0500 into a fourth straight trading day on Wednesday with investors staying on the sidelines ahead of the US April inflation data. 

Markets expect the Consumer Price Index (CPI) in the US to edge lower to 8.1% on a yearly basis from 8.5% in March. A soft inflation print could cause the greenback to lose its appeal and help EUR/USD break higher. On the flip side, a stronger-than-forecast CPI reading should attract dollar bulls and force the pair to lose its traction.

It's worth noting that factors driving the US inflation higher, such as supply-chain issues and rising energy prices amid the prolonged Russia-Ukraine conflict, remain in place. Hence, it's too early to say whether or not the pair could stage a steady rebound on a single data point.

US CPI Preview: Hard core inflation to propel dollar to new highs, and two other scenarios.

The positive shift witnessed in risk mood is helping the shared currency stay resilient against the dollar early Wednesday. The Euro Stoxx 600 Index is up 0.5% and US stock index futures post modest daily gains. In case Wall Street's main indexes gain traction after the US data, the dollar is likely to have a hard time finding demand.

In the meantime, European Central Bank (ECB) President Christine Lagarde repeated on Wednesday that she was expecting the Asset Purchase Programme (APP) to be concluded early in the third quarter. Although this remark suggests that the first ECB rate hike is likely to come in July, the shared currency failed to capitalize on it due to the fact that ECB policymakers have been voicing their support for such a move since mid-April.

On the other hand, the benchmark 10-year US Treasury bond yield is already down more than 6% this week, keeping the dollar's upside capped. Cleveland Fed President Loretta Mester said on Tuesday that the Fed would need to assess the situation after hiking the policy rate by 50 basis points in June and July.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the four-hour chart rose above 50 early Wednesday, pointing to a bullish tilt in the near term. Additionally, EUR/USD continues to trade above the 20 and 50-period SMAs on the same chart, confirming the view that sellers remain on the sidelines.

On the upside, 1.0600 (psychological level, Fibonacci 23.6% retracement of the latest downtrend) aligns as key resistance. With a four-hour close above that level, further recovery gains toward  1.0630 (100-period SMA) and 1.0660 (Fibonacci 38.2% retracement) could be witnessed.

Supports are located at 1.0540 (20-period SMA, 50-period SMA), 1.0500 (psychological level and 1.0470 (multi-year low set on April 26).