The EUR/USD pair is maintaining a neutral stance, trading around 1.0851 on Wednesday, as the market anticipates crucial updates, including the US inflation data for March and the outcome of the European Central Bank (ECB) meeting on Thursday. Given the significant events on the horizon, investors are exhibiting caution.
The US inflation rate for March is anticipated to show a 0.3% month-on-month increase, slightly below February’s 0.4% rise. The core Consumer Price Index (CPI) is also expected to grow by 0.3% month-on-month. The market consensus leans towards the US Federal Reserve reducing its interest rate by 75 basis points throughout 2024, indicating three separate 25-point cuts.
Despite the increase in yields on US government bonds since the start of the year, the US dollar’s reaction has been relatively subdued, with only a 2.5% appreciation against a 47-basis point widening in benchmark bond yields. This disparity suggests that the US dollar may play catch-up with Treasury yields, or bond yields might decrease to close the gap. This raises questions about the timing of this adjustment.
The ECB’s interest rate is expected to remain at 4.5% per annum, with the European regulator likely to wait for the Fed’s move towards easing monetary policy before making its adjustments. This approach is taken even though the eurozone has effectively managed high inflation ahead of other developed economies, theoretically positioning it to adapt its monetary policy sooner.
Technical analysis of EUR/USD
The H4 chart analysis of EUR/USD indicates a correction wave to 1.0883 followed by a decrease to 1.0844. A narrow consolidation range has formed above this level, potentially leading to a correction towards 1.0904 before a new decline towards 1.0790, with a continuation to 1.0700 as a possible target. The MACD indicator, with its signal line above zero and the histogram declining, suggests a potential sharp decrease.
The H1 chart shows a consolidation range of around 1.0850, extending to 1.0884. The market has returned to 1.0843, with the possibility of another correction wave to 1.0904 before a downward movement to 1.0790. The Stochastic oscillator, currently below 50, indicates a continuation of the decline towards 20, supporting the bearish scenario.
