EUR/USD Forecast: Getting ready to rock on the US inflation report

  • The EUR/USD is trading slightly lower, consolidating previous gains amid OK European data.
  • An abrupt end to the calm is in sight with the all-important US inflation report.
  • The technical picture is balanced, but with a modest upside bias. 

The EUR/USD slightly lower around 1.2340, consolidating previous gains. Data in the euro-zone came out mostly as expected, with Germany posting a growth rate of 0.6% q/q, Italy seeing a small miss with 0.3% against 0.4% expected, and the euro-zone confirming the 0.6% growth rate reported in the initial read for Q4 2017.

The stage is all set for the all-important and highly anticipated US inflation report. Financial markets are getting hyped and perhaps overhyped about the event. Core CPI is expected to remain unchanged at 1.8% y/y, and any outcome may trigger big moves. See the full preview here

EUR/USD Technical Analysis

The mounting tension may explode once the data is out. Despite the recent fall, the technical picture is slightly positive for the pair.

The RSI remains above 50, pointing to further gains. Momentum has turned negative, but only just. The broader trend is to the upside with high lows on the daily chart. Both uptrend support lines that are drawn on the chart point to further gains.

The pair is trading just below 1.2350, which worked as resistance and as support earlier in the year. On the upside, 1.24 can serve as an immediate line of resistance in case of a soft US inflation read. A further cap is at the 2018 high of 1.2537. 

Looking down, a rise in US inflation could send the pair to the round number of 1.23, and a further downfall could challenge Friday's lows at 1.2205. The next cushion is close: 1.2160, before the all-important 2017-peak of 1.2090.

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