EUR/USD Prices Forecast: Fed, ECB Decisions Loom as Traders Await Inflation Data

Highlights

• US CPI data to influence Federal Reserve decisions.
• ECB grapples with above 3% inflation forecast.
• EU Commission predicts slower euro zone growth.

EUR/USD Under Scrutiny Amid Key Economic Data Releases

US CPI Report and Its Market Implications

The EUR/USD slipped slightly on Wednesday, trading at 1.0744 as investors keenly await the pivotal US inflation data that’s predicted to steer the Federal Reserve’s future monetary moves.

This inflation data, specifically the Consumer Price Index (CPI), will be crucial. Monthly CPI statistics are curated by the Bureau of Labor Statistics (BLS), taking into account prices from a variety of urban sectors and tens of thousands of establishments.

Primarily, traders watch the headline and core CPI, the latter excluding unpredictable food and energy costs. The awaited August inflation data, due to be released at 12:30 GMT, projects headline inflation to surge by 3.8% year-over-year, up from July’s 3.2%. Similarly, the core CPI for August is anticipated to rise by 4.5% annually.

Federal Reserve’s Stance

The forthcoming inflation numbers will be paramount for the Federal Reserve’s decisions. At its last gathering in July, the Federal Reserve Committee (FOMC) increased the short-term federal funds rate by 0.25%. However, for the upcoming September meet, the market foresees a potential halt in rate adjustments. Current sentiments, as of September 11, peg a 93% likelihood of the Fed maintaining a 5.25%-5.5% rate bracket.

European Central Bank’s Predictions and Moves

Meanwhile, the European Central Bank (ECB) faces a conundrum, grappling with inflation above 3% for the euro zone next year. As the ECB begins its two-day meeting, expectations remain split between a potential rate pause and a 0.25% surge. With inflation constantly over 5% and a tight labor market, the central bank aims to manage the inflation through rigorous monetary measures.

EU Commission on Euro Zone Economic Growth

The European Commission posits a slower growth for the euro zone economy this year and the next. While Germany, Europe’s economic powerhouse, is expected to experience a 0.4% contraction, France and Spain’s growth might surpass prior estimates. The Commission also projects the euro zone consumer inflation at 5.6% for 2023, which significantly exceeds the ECB’s 2% objective.

Market Outlook

As the inflation data unveils, if the U.S. statistics overshoot expectations, the EUR/USD pair might feel the pressure.

Current trader behavior suggests investors pivoting from the Euro to the U.S. Dollar, possibly eyeing beneficial value post the CPI data release.

With an approximately 47% probability of a rate escalation in November, the Euro’s fate hinges on the forthcoming U.S. and European Central Bank decisions. The comparative interest rates between U.S. Government bonds and German Bunds will likely dictate the currency’s direction.

Technical Analysis

The current 4-hour price of EUR/USD sits at 1.0744, slightly below its previous 4-hour close of 1.0752. The price is just below the 50-4H moving average of 1.0746, but considerably below the 200-4H moving average of 1.0874. The 14-4H RSI reading at 52.21 indicates a slightly positive momentum, as it’s above the neutral 50 mark but not yet in overbought territory.

In terms of support and resistance, the price is nestled between the main support area of 1.0671 to 1.0638 and the main resistance area of 1.0766 to 1.0772. Given the proximity to the 50-4H MA and the RSI’s position, market sentiment appears cautiously bullish. Furthermore, 1.0772 is a potential trigger point for an upside breakout should today’s US CPI results produce favorable conditions for the EUR/USD.