EUR/USD Forecast: Higher US CPI should not twist Fed’s hand

Valeria Bednarik FXStreet

EUR/USD Current Price: 1.0756

The United States' annual inflation rose by more than anticipated in August.
The European Central Bank will announce its monetary policy decision on Thursday.
EUR/USD picks up in the near term could regain the 1.0800 mark.

The EUR/USD pair held within familiar ranges throughout the first half of Wednesday as market participants awaited United States (US) inflation figures. The pair traded in the 1.0730 price zone before the release after hitting an intraday high of 1.0764 during Asian trading hours.

The Euro retreated following the release of local data, as Industrial Production in the Euro Zone fell by 1.1% MoM in July while contracting 2.2% from a year earlier. Meanwhile, stock markets remained on the back foot, providing modest support to the US Dollar ahead of data.

The US Bureau of Labor Statistics reported the US Consumer Price Index (CPI) rose by 3.7% YoY in August, above the 3.6% expected and the 3.2% posted in July. The monthly reading came in at 0.6%, matching forecasts, while the core annual reading also met expectations, easing to 4.3% from 4.7% in the previous month. Higher price pressures are to blame on energy prices, according to the official report, which noted that the index for gasoline was the largest contributor to the monthly all items increase, accounting for over half of the increase." The energy index rose 5.6% in the month, as all major energy component indexes were up.

The US Dollar initially rallied with the news but quickly changed course, with EUR/USD now trading in the 1.0750 price zone. Despite a higher-than-anticipated headline reading, speculative interest does not believe the number could affect the Federal Reserve (Fed) monetary policy.

On the other hand, the odds for a European Central Bank (ECB) rate hike this week continued to increase amid rising inflationary concerns.

EUR/USD short-term technical outlook

The daily chart for the EUR/USD pair shows it trades near the weekly high of 1.0768, although the bullish potential remains limited. The pair develops below all its moving averages, with the 20 Simple Moving Average (SMA) heading firmly south below the longer ones. The Momentum indicator, in the meantime, picked up but remains within negative levels, while the Relative Strength Index (RSI) indicator consolidates around 40.

The risk skews to the upside in the near term. A mildly bullish 20 SMA continues to provide intraday support, with EUR/USD quickly recovering on slides below it. The longer moving averages maintain their bearish slopes above the current level, but technical indicators gain modest upward traction within positive levels. Further gains could be expected on a run through 1.0770, the immediate resistance area.

Support levels: 1.0720 1.0685 1.0640

Resistance levels: 1.0770 1.0815 1.0850

View Live Chart for EUR/USD

Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

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