EUR/USD Trades Sideways Ahead of Key US Inflation Data
EUR/USD remains range-bound in the 1.0860s on Tuesday, as market participants await the release of the highly anticipated US Consumer Price Index (CPI) inflation report for March, due out Wednesday.
CPI Data: A Catalyst for Volatility
Economists forecast a slight decline in both headline CPI (to 3.4% YoY) and core CPI (to 3.7% YoY). However, these readings remain significantly above the Federal Reserve's (Fed) 2.0% target. Unless inflation shows a more substantial decline, the Fed is likely to maintain its current higher interest rate stance. Relatively higher US interest rates tend to attract foreign capital inflows, favoring the US Dollar and acting as a headwind for EUR/USD.
ECB Outlook: Rate Cuts Loom
In contrast, the European Central Bank (ECB) is viewed as more likely to cut interest rates in response to slowing growth and subdued inflation expectations within the Eurozone. This divergence in central bank outlooks could weigh on the EUR/USD pair.
Rising US Treasury Yields
US Treasury yields, a key indicator of inflation expectations, hit year-to-date highs on Monday before declining slightly. Since strong US jobs data last Friday fueled inflation expectations, any further rise in yields would likely pressure EUR/USD.
Technical Analysis: Range-Bound with Key Moving Averages
EUR/USD appears increasingly confined within a short-term range. Recent candlestick patterns offer mixed signals, with a bearish Gravestone Doji countered by a bullish Dragonfly Doji. The 50-day and 200-day Simple Moving Averages (SMAs) provide support near 1.0830, while the 100-day SMA offers resistance at 1.0873. A decisive break above the 100-day SMA could trigger a move towards the March 21st high of 1.0942. Conversely, a break below the 1.0830 support area might lead to a pullback towards the April 2nd swing low around 1.0725.