- EUR/USD has been shrugging off concerns of higher inflation and edges higher.
- Tensions toward the ECB and US CPI, both due on Thursday, are mounting.
- Wednesday's four-hour chart is showing bulls are in the lead.
In every calm before the storm, there is one currency in the lead – and the euro seems to be coming on top, improving its position. The storm is the duo of events on Thursday, the European Central Bank's decision, and the publication of US inflation figures.
The hint that the wind is blowing in favor of the bulls comes from the dollar's failure to gain from a sign that Consumer Price Index statistics will be strong. China, the world's second-largest economy, published earlier on Wednesday. Beijing reported a leap of 9% YoY in producer prices in May.
If making Chinese goods is costly, the buyers of such products in America are also likely to face higher prices. Nevertheless, the greenback has failed to gain ground, a sign of weakness. It seems that traders do not expect the Federal Reserve to react, sticking to its position that inflation is only transitory.
US CPI May Preview: Inflation angst is coming
Investors are speculating about the Fed's potential tapering of bond buys and also about a similar move from the ECB. The Frankfurt-based institution ramped up the pace of purchases early this quarter, in response to rising yields. However, Europe's epidemiological situation has improved considerably, and so have the underlying economies.
Is it time to scale back bond buys? The ECB faces fewer inflationary pressures than those in the US and fears of virus variants is also substantial. An ongoing effort to stimulate the economy could weigh on the euro, but that is a story for Thursday, not Wednesday.
European Central Bank Preview: Why June's decision presents a buy the dip opportunity
All in all, the currency pair has room to drift higher on Wednesday.
EUR/USD Technical Analysis
Euro/dollar has recaptured the 50 Simple Moving Average on the four-hour chart and momentum has flipped to the upside, both bullish signs. It has yet to retake the 100 SMA.
Resistance awaits at 1.22, the round number and weekly high. It is followed by 1.2255, a swing high from last week, and from May's top of 1.2266.
Some support awaits at 1.2160, which cushioned the pair on Tuesday, followed by 1.2145, which was a stepping stone on the way up. Strong support is at 1.21.
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