EUR/USD Forecast: Euro needs to clear 0.9800 to extend rebound

EUR/USD has gone into a consolidation phase below 0.9800 after having closed in positive territory on Thursday. The near-term outlook points to a neutral bias during the European trading hours but the pair could find it difficult to gather bullish momentum unless risk flows continue to dominate the financial markets.

On Thursday, the US Bureau of Labor Statistics reported that the Core Consumer Price Index (CPI) rose to 6.6% on a yearly basis in September from 6.3% in August. This reading came in higher than analysts' estimate of 6.5% and triggered a dollar rally, causing EUR/USD to slump to a fresh two-week low near 0.9630.

Wall Street's main indexes, however, surged higher after the opening bell despite hot inflation data and made caused the USD to weaken against its rivals. Investors refrained from betting on a 100 basis points Fed rate hike in November, allowing investors to breathe a sigh of relief. Early Friday, US stock index futures trade virtually unchanged on the day.

The US economic docket will feature September Retail Sales data. Additionally, the University of Michigan (UoM) will publish the preliminary Consumer Sentiment Survey for October.

The 5-year Consumer Inflation Expectation component of the UoM's survey dropped to 2.7% in September from 2.9% in August. In case markets observe another decline in the long-run inflation expectations, US stock markets could look to end the week on a firm footing and allow EUR/USD to stretch higher. On the other hand, a negative shift witnessed in risk mood after the data is likely to force the pair to turn bearish.

EUR/USD Technical Analysis

EUR/USD failed to make a four-hour close above 0.9800 despite having climbed above that level earlier in the day. Meanwhile, the Relative Strength Index (RSI) indicator stays near 50, suggesting that the pair is struggling to gather bullish momentum.

If the pair manages to flip 0.9800 into support, it could extend its rebound toward 0.9840 (Fibonacci 50% retracement of the latest downtrend), 0.9880 (200-period SMA, Fibonacci 61.8% retracement) and 0.9900 (psychological level).

On the downside, 0.9750 (Fibonacci 23.6% retracement, 100-period SMA) aligns as key support. In case buyers fail to defend that level, additional losses toward 0.9730 (20-period SMA), 0.9680 (static level) and 0.9630 (October 13 low) could be witnessed.