EUR/USD Daily Forecast – Euro Hovers near 200 WMA Ahead of US CPI

EUR/USD has been inching higher since hitting a low on Monday. The pair is seen once again making a run for the 200 weekly moving average. Ultimately, today’s CPI data will determine if a break will materialize.
Jignesh Davda

Draghi’s Speech: No Attempt to Adjust Market Expectations

Draghi’s speech did not have a significant impact on the exchange rate, as is typical when he makes a welcome speech at an event. So why is it still considered important?

In Monday’s daily forecast I provided links to some articles that were published on Reuters. The articles attempted to somewhat back peddle the ECB meeting by offering a dovish perspective.

There have been occasions in the past where bank officials will release communication after a bank meeting if they believe the markets have misunderstood their stance. Today’s speech was Draghi’s opportunity to clarify the stance in the event it was misunderstood (as the Reuters articles suggested).

US CPI Data Up Next

Since he didn’t attempt to adjust market expectations, everything remains status quo, and the euro looks to US CPI data for its next move.

The futures markets are pretty much fully pricing in a rate cut, perhaps the Fed is not quite there yet. So what would sway the minds of policymakers? Well, a weaker inflation reading would certainly be a cause for concern.

US Consumer price index figures are scheduled for release in the early North American session. Analysts are expecting core CPI to tick up after it fell short of expectations in the past three readings. Headline CPI is only expected to rise by 0.1% in May after it rose 0.3% in April.

I would not be too surprised on a miss in inflation data. But I do think it’s important to consider how aggressively the markets are pricing in a rate cut. This exposes risk to an upside surprise.

It also causes me to have some doubts whether we see a sustained break above the 200 WMA on the back of this data release. Not that I expect a decline, but I think the CPI miss would need to be significant for EUR/USD to climb above the moving average and stay above it.

Technical Analysis

The 200-week moving average is currently residing at 1.1345. It carries confluence with the 50% objective measured from the years high to low. Last week, this technical level capped the upside.

EURUSD 4-Hour Chart

On a 4-hour chart, EUR/USD is seen hovering around the level in early European trading. On this time frame, 1.1318 is considered an important horizontal level.

However, on the hourly chart, the level is not as significant as price as traded on both sides of in the recent past.

EURUSD Hourly Chart

Currently, the level does carry some confluence with the lower bound of rising trendline that has encompassed price action since the pair bottomed on Monday.

The upside does not have much momentum, causing the grind higher to look like a bear flag pattern. However, considering how far we’ve rallied compared the prior high, I wouldn’t necessarily try to play the pattern.

Just below 1.1318, I see further support at 1.1308. The 100-hour moving average is seen converging towards it.

Bottom Line

  • A miss in US inflation data can take the pair above resistance but I would exercise caution playing the pair to the upside. Perhaps this is a scenario where it’s worthwhile taking additional measures to confirm an upside break.
  • In the event CPI figures are stronger than expected, I see support at 1.1308. It’s very possible the markets may take the pair below Monday’s low. I see support in that area around 1.1277.
  • On an upside break, be mindful of the 200-day moving average. It is currently at 1.1364.

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