EUR/USD Forex Technical Analysis – Hot Inflation Data to Greenlight Supersized ECB Rate Hike

The Euro is edging higher on Wednesday as investors continue to build a support base near parity on the hopes that today’s key economic reports will greenlight an aggressive rate hike from the European Central Bank (ECB) at next week’s monetary policy meeting.

On the back of German inflation that is dashing along at its highest level in nearly 50 years, not only are traders increasing rate-hike bets in Europe, but growing chorus of ECB officials are calling for a supersized rate hike next week.

At 05:51 GMT, the EUR/USD is trading 1.0039, up 0.0023 or +0.23%. On Tuesday, the Invesco CurrencyShares Euro Trust ETF (FXE) settled at $92.51, up $0.20 or +0.22%.

Today’s Euro Zone CPI Flash Estimate and Core CPI Flash estimates, due to be released at 09:00 GMT, are expected to be market moving events on Wednesday with their impact possibly carrying over into next week’s ECB meeting. Traders are looking for CPI to come in at 9.0%, up slightly from the previously reported 8.9%, and Core CPI to come in at 4.1%, up from 4.0% last month.

Ahead of the release of the data, some ECB policymakers are already calling for an aggressive rate hike at next week’s bank policy meeting on September 8 even if recession risks loom.

The ECB raised its deposit rate by 50 basis points to zero last month in an unexpectedly big move and other similar increase is also priced in for the Sept. 8 meeting. However, a larger-than-expected CPI reading today is likely to drive up the odds of a 75 basis point rate hike and could spike the EUR/USD through 1.0100.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 1.0089 will change the main trend to up. A move through .9901 will signal a resumption of the downtrend.

On the downside, early support is at .9995, while the first resistance is at 1.0052. Additional resistance is 1.0135, which happens to be the trigger point for an acceleration to the upside.

Daily Forecast

Trader reaction to the pivot at 1.0052 is likely to determine the direction of the EUR/USD on Wednesday.

Bullish Scenario

A sustained move over 1.0052 will indicate the presence of buyers. This could trigger a quick move into the main top at 1.0089. A trade through this level will change the main trend to up with 1.0135 the next target.

Taking out the pivot at 1.0135 will indicate the buying is getting stronger. If it attracts enough buyers, we could see an acceleration to the upside with the next potential target coming in at 1.0258.

Bearish Scenario

A sustained move under 1.0052 will signal the presence of sellers. The first target will be a pivot at .9995. If this fails then look for the selling to possibly extend into the minor bottom at .9914, followed by the main bottom at .9901. These are the last potential support levels before the December 2, 2002 bottom at .9860.