EUR/USD Forecast: Euro’s action to remain limited ahead of US inflation data

EURUSD drops marginally but holds parity ahead of US Mid-term elections
  • EUR/USD has been moving sideways near multi-month highs.
  • Near-term technical outlook suggests that the pair is about to turn overbought.
  • EUR/USD could have a hard time gathering bullish momentum unless risk mood improves.

EUR/USD has edged higher early Wednesday after having fluctuated in a tight channel on Tuesday. The pair stays within a touching distance of the multi-month high it recently set at 1.0760 but it could find it difficult to gather bullish momentum in the absence of high-impact macroeconomic data releases. 

European Central Bank (ECB) Governing Council member Mario Centeno said late Tuesday that the current process of interest rate increases could be approaching its end. Regarding the inflation outlook, Centeno noted that inflation may have some resistance in January and February before starting to decline in March. Nevertheless, these comments had no noticeable impact on the Euro’s valuation.

Early Wednesday, US stock index futures trade modestly lower on the day. Investors are unlikely to place large positions ahead of Thursday Consumer Price Index (CPI) data from the US. After having registered strong gains on Tuesday, Wall Street’s main indexes could stage a correction and help the US Dollar hold its ground in the second half of the day. In case the risk rally picks up steam, however, EUR/USD could continue to stretch higher.

The 10-year US Treasury note auction from the US will be looked upon for fresh impetus in the late American session. In case the high-yield comes in below 3.5%, the 10-year US T-bond yield could turn south and put some weight on the US Dollar’s shoulders.

EUR/USD Technical Analysis

Static resistance seems to have formed at 1.0750. Once the pair rises above that level and starts using it as support, it could target 1.0800 (psychological level, static level) and 1.0840 (static level). It’s worth noting that the Relative Strength Index (RSI) indicator on the four-hour chart is about to cross above 70. Buyers could move to the sidelines in the near term and wait for a downward correction before taking action.

On the downside, 1.0700 (psychological level, static level) aligns as first support before 1.0640 (50-period Simple Moving Average (SMA), 100-period SMA) and 1.0580 (200-period SMA).

Written by Andy KIng