EUR/USD Forecast: Euro consolidates near 1.0850 ahead of inflation data

The EUR/USD hit the highest level in four days at 1.0871 and then pulled back, ending flat around 1.0840. The pair is consolidating as market participants await critical inflation data from the Eurozone and the US. The US Dollar rose during the American session despite a rally in US stocks. 

European Central Bank’s rate-setters on the wires continued to talk about the need to raise interest rates further, also considering the situation in financial markets. Forecasts point to a 25 basis points rate hike at the next meeting on May 4. The hawkish comments continue to offer support to the Euro.

Regarding economic data, Germany reported April GfK Consumer Confidence. The survey came in at -29.5, below the -29.2 of market consensus, showing an indiscernible improvement. More German data is coming with March inflation figures (preliminary) on Thursday and February Retail Sales and March Unemployment Rate on Friday. 

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On both sides of the Atlantic, attention is set on inflation data. On Thursday, Spain and Germany will release the estimated reading of March inflation and the rest of the countries and the Eurozone on Friday. In the US, the number of the week will be the Core Personal Consumption Expenditure Price Index on Friday. In addition, the US Labor Department will release the weekly Jobless Claims and the Bureau of Economic Analysis, the third estimate of Q4 GDP growth. Also, on Thursday, the European Commission will release its business and consumer surveys. 

Inflation numbers will be the main focus for the next sessions unless some bank hits the wires. As the banking crisis eases, the outlook for the Euro improves. The EUR/USD bias is to the upside, but a return above 1.0900, for the moment, needs a weaker Dollar. 

EUR/USD short-term technical outlook 

The EUR/USD lost its positive momentum; however the retreat from the peak of 1.0871 has been limited. The daily chart is still biased to the upside, but the Euro is struggling to extend gains. The key area on the chart is 1.0740/50: while above, upside risk dominates. 

In the near term, the 4-hour chart favors the bulls as the price remains above the 20-period Simple Moving Average (SMA) that turned north. However, RSI and Momentum flattened as EUR/USD entered a consolidation phase. Ahead of relevant events, if the pair breaks and holds above 1.0865, more gains seem likely. The mentioned 20-SMA and an uptrend line around 1.0810/15 should limit a potential slide. A downward extension below the latter should expose 1.0785. 

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