EUR/USD Price Forecast: Hotter than expected US inflation unwinds risk-off

Valeria Bednarik FXStreet

EUR/USD Current price: 1.0318

US inflation rose at a faster-than-anticipated pace in January.
Fed Chairman Jerome Powell is due to testify before Congress.
EUR/USD is testing the 1.0300 region and poised to break lower.

The EUR/USD pair advanced to a fresh weekly high of 1.0384 during European trading hours on Wednesday, moving cautiously ahead of United States (US) first-tier figures. The US Dollar (USD) eased for a third consecutive day, albeit losses were moderated ahead of the US Consumer Price Index (CPI) release.

The absence of relevant European data exacerbated range-trading ahead of the US CPI, which finally resulted in hotter-than-anticipated. All figures were above expected, with the annual CPI up by 3.0% in January compared to the same month last year. The core annual reading printed at 3.3% vs the previous 3.2% and the expected 3.1%. On a monthly basis, the CPI rose 0.5%, higher than the 0.4% posted in December and the expected 0.3%.

Higher-than-expected inflation figures triggered a USD run, as an interest rate cut is now out of the picture in the upcoming months. The EUR/USD pair turned red with the news and trades around 1.0320.

Later today, Federal Reserve (Fed) Chairman Jerome Powell will testify on the Fed’s Semi-Annual Monetary Policy Report to the US House Committee on Financial Services. He will likely repeat what he said on Tuesday, so the surprise factor would be missing, meaning Powell’s testimony may have a limited impact on the USD, although questions about hotter inflation may introduce some noise.

EUR/USD short-term technical outlook

From a technical point of view, the daily chart for the EUR/USD pair shows the risk of a downward extension has increased. A mildly bullish 20 Simple Moving Average (SMA) provided dynamic resistance in the 1.0380 region for a second consecutive day. The 100 and 200 SMAs gain downward traction far above the shorter one, in line with mounting selling pressure. Finally, technical indicators resumed their slides within negative levels, also supporting a bearish continuation.

In the near term, and according to the 4-hour chart, the case for another slide is also stronger. EUR/USD retreated from around a flat 100 SMA while then breaking below a bearish 20 SMA. Technical indicators, in the meantime, turned south almost vertically, with the Relative Strength Index (RSI) indicator already at 44, in line with additional slides should the pair extend its slide below 1.0300.

Support levels: 1.0300 1.0260 1.0220

Resistance levels: 1.0340 1.0385 1.0420

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.

AUD/USD softens below 0.7050 on risk-off mood, China's Manufacturing PMI data looms

The AUD/USD pair declines to around 0.7025 during the early Asian session on Monday. The US Dollar strengthens against the Australian Dollar amid elevated geopolitical tensions in the Middle East. China’s RatingDog Manufacturing Purchasing Managers Index report is due later on Monday. Traders will closely monitor the Reserve Bank of Australia interest rate decision on Tuesday.

USD/JPY meets support near 157.00

USD/JPY retreats for the third consecutive day on Friday, revisiting the 157.00 region before attempting some recovery as investors continue to assess the latest BoJ meeting, where the central bank left rates unchanged, as widely anticipated.

Gold sinks to fresh yearly lows despite risk-off mood as Fed rate hike bets weigh

Gold slips to fresh year-to-date lows on Friday. The metal struggles despite a risk-off mood across markets, as expectations of further Federal Reserve (Fed) interest rate hikes continue to dominate price action, leaving Gold on track to end the month in negative territory.

Week ahead: Nonfarm Payrolls and US midterm elections take center stage

The US dollar traded higher against most of its peers this week, beginning the week on a solid footing amid expectations of a hawkish FOMC decision on Wednesday. Although market participants were convinced that a rate hike was off the table, they were on the lookout for clues and hints on whether they were correct in nearly fully pricing in a 25bps rate hike in December.

Middle East War updates: Iran warns of expanded strikes against US despite progress in talks

Here’s a brief recap of the key developments in the Middle East war that occurred over the weekend, which are expected to have a significant impact on markets in the upcoming week.

The 2% inflation target came from a throwaway remark. It now moves trillions

The Federal Reserve's 2% inflation goal grew out of an off-the-cuff remark by a New Zealand politician in 1988. Bond investors still price long-term US debt as if 2% holds, so a change in how the Fed measures inflation would move markets.