generic EUR/USD Forex Technical Analysis – Could Be Rangebound Until Friday’s CPI Flash Estimate Reports
The Euro is trading flat on Wednesday after recovering all of it early session losses. The volatile, two-sided price action is being fueled by conflicting regional inflation data that has some traders worried about the direction of interest rates.
Short-covering ahead of a panel of speeches from several European Central Bank members including European Central Bank (ECB) President Christine Lagarde, and Federal Reserve Chairman Jerome Powell, could also be contributing to the volatility.
At 12:15 GMT, the EUR/USD is trading 1.0517, down 0.0004 or -0.04%. On Tuesday, the Invesco CurrencyShares Euro Trust ETF (FXE) settled at $97.39, down $0.47 or -0.48%.
Lagarde Dovish, Regional CPI Data Mixed
On Tuesday, Lagarde drove the Euro lower after sending a softer signal about rate hikes expectations than traders anticipated. The move continued into Wednesday after Germany reported June consumer inflation dropped 0.1% in May.
The single-currency erased the earlier losses after data showed Spanish 12-month inflation had risen to 10.2% in June, up from 8.7% in May. The figure also rose into double-digits for the first time since April 1985.
Conflicting Inflation Rates Poses Problem for ECB
The conflicting CPI data from Germany and Spain poses a problem for ECB policymakers. Traders are reflecting this issue in the price action today. Do they try to cool accelerating inflation in Spain, for example? Or do they risk damaging growth in Germany by hiking rates too aggressively?
The rangebound price action in the EUR/USD suggests traders aren’t sure about the magnitude of the upcoming rate hikes.
Friday’s CPI Flash Estimates May Set the Near-Term Tone
Euro Zone Government bond yields fell on the German CPI, and stabilized on the Spanish CPI report. EUR/USD followed that movement. However, there wasn’t a major commitment to either side because traders are waiting for Friday’s Euro Zone CPI Flash Estimate and Core CPI Flash Estimate.
The CPI Flash Estimate is expected to come in at 8.5%, up from 8.1%. The Core CPI Flash Estimate is expected to rise slightly to 3.9%, from 3.8%.
Stronger-than-expected CPI data should be bullish for the EUR/USD because it may force the ECB to be more aggressive with its rate hikes. Weaker-than-expected CPI data should be bearish for the EUR/USD because it could mean inflation if peaking. This would encourage ECB policymakers to be less-aggressive in setting monetary policy.
Daily Swing Chart Technical Analysis
The main trend is down according to the daily swing chart. However, momentum is in a slight uptrend.
A trade through 1.0615 will change the main trend to up. A move through 1.0359 will signal a resumption of the downtrend.
The short-term range is 1.0359 to 1.0615. The EUR/USD is currently testing its pivot at 1.0487.
The intermediate range is 1.0774 to 1.0359. Its retracement zone at 1.0567 to 1.0616 is resistance.
Daily Swing Chart Technical Forecast
Trader reaction to 1.0487 will likely determine the direction of the EUR/USD into the close on Wednesday.
Bullish Scenario
A sustained move over 1.0487 will indicate the presence of buyers. This could lead to a labored rally with upside targets a 50% level at 1.0567, and a resistance cluster at 1.0615 – 1.0616. The latter is the trigger point for an acceleration to the upside.
Bearish Scenario
A sustained move under 1.0487 will signal the presence of sellers. This price is the trigger point for an acceleration to the downside.
Side Notes
The EUR/USD has been rangebound for nearly two weeks because traders have been adjusting and readjusting positions according to what they think the ECB will do with interest rates.
This question is likely to be answered on Friday with the release of the Euro Zone CPI data.
For a look at all of today’s economic events, check out our economic calendar.
This article was originally posted on FX Empire
