EUR/USD Forecast: Euro eyes highly volatile session

• EUR/USD has gone into a consolidation phase below 1.0400.
• Inflation data from the Eurozone could ramp up EUR/USD's volatility.
• FOMC Chairman Powell will speak later in the day.

EUR/USD has lost its traction before testing 1.0400 on Tuesday and has been moving up and down in a tight range since. The technical outlook shows that the pair is lacking directional momentum but the key macroeconomic events of the day could cause it to break out of its range.

On Tuesday, the negative shift witnessed in risk mood with Wall Street's main indexes pushing lower after the opening bell helped the US Dollar stay resilient against its rivals and didn't allow EUR/USD to gather bullish momentum. The risk sentiment remains neutral early Wednesday as US stock index futures trade flat on the day.

Eurostat will release the Harmonised Index of Consumer Prices (HICP) data for November at 1000 GMT. Germany's Destatis reported on Tuesday that the annual Consumer Price Index (CPI) declined to 10% from 10.4% in October. In the Eurozone, the annual HICP is forecast to edge lower to 10.4% and the Core HICP is expected to stay unchanged at 5%.

In case the Core HICP declines unexpectedly, the Euro could come under renewed selling pressure. Several European Central Bank (ECB) policymakers have been calling for a more gradual approach to policy tightening moving forward and a soft inflation report could revive expectations for a 50 basis points (bps) ECB rate hike in December. On the other hand, a stronger-than-anticipated Core HICP print is likely to provide a boost to the EUR/USD. Earlier in the week, ECB President Christine Lagarde reminded markets that interest rates will remain as their primary tool to fight inflation.

Eurozone Inflation Preview: EUR/USD fate hinges on confirmation of peak inflation.

In the second half of the day, the ADP will publish the private sector employment report. Investors, however, are likely to refrain from taking positions based on that data.

FOMC Chairman Jerome Powell will deliver a speech titled "The economic outlook, inflation and the labor market" at an event organized by Brookings İnstitution at 1830 GMT. This will be Powell's last appearance before the Fed goes into a two-week blackout period.

Bloomberg reported earlier in the week that Powell was expected to set the stage for slowing rate increases. In case Powell confirms a 50 bps hike in December, the US Dollar is likely to suffer heavy losses and vice versa. According to the CME Group FedWatch Tool, markets are pricing in a 67.5% probability of a 50 bps increase, suggesting that there is room for further US Dollar weakness on a dovish tone.

EUR/USD Technical Analysis

EUR/USD is fluctuating below the 20-period Simple Moving Average (SMA) on the four-hour chart but struggling to pull away from the 50-period SMA, reflecting the pair's indecisiveness. Additionally, the Relative Strength Index is flat near 50.

On the upside, 1.0390/1.0400 (20-period SMA, psychological level) aligns as first resistance area. In case the pair clears that hurdle and starts using it as support, it could target 1.0470 (static level) and 1.0500 (psychological level, multi-month high set on Monday).

The 100-period SMA and the Fibonacci 23.6% retracement of the latest uptrend form critical support at 1.0300. A four-hour close below that level could attract sellers and open the door for an extended slide toward 1.0200 (Fibonacci 38.2% retracement).