EURUSD traded flat on Wednesday, exchanging at 1.0856 ahead of the release of March US inflation figures. The pair is currently on its third day of sideways movement after being rejected at 1.0885 on Tuesday. The euro’s upsurge against the US dollar has been dragged by strong US Treasury yields and strong safe haven demand for the greenback.
The focus on Wednesday will be on the March US CPI figures, which could help shape the interest rate narrative. The US economy has remained resilient amidst high inflationary pressures, with the better-than-expected March Nonfarm jobs figures underlining this. This has bolstered the growing perception in the market that the Fed will likely delay cutting the current 5.25-5.50% interest rates.
The headline CPI (excluding food and energy) is expected to show a decline to 0.3% from 0.4% month on month. Meanwhile, the yearly inflation is forecast to come in at 3.4%, which would be an increase from February’s 3.2% and well above the Fed’s target of 2%. Fed member Michelle Bowman will speak within minutes of the CPI data release, and her comments could inject new volatility into the mix.
Later in the day, the Fed will release the FOMC March meeting minutes. Investors will be keenly going through the minutes for hints on what could shape the monetary policy direction. The Fed had indicated that the year could have three interest rate cuts in 2024, but that could change if the current trajectory of high inflation and strong macroeconomic data continues. Across the Atlantic, the ECB is expected to announce its interest rate decision on Thursday and this could see investors readjust their positions later on Wednesday. However, the market largely expects the bank to retain the current 4.5% rate.
Technical analysis
The momentum on EURUSD favours the upside, as indicated by the RSI indicator. The pivot on EURUSD is at 1.0858, and the buyers will need to stay above this level to sustain the upward momentum. That could see them break above the resistance at 1.0870 and potentially test 1.0881. On the other hand, a break below 1.0858 will put the sellers in control, with support at 1.0845. Furthermore, a continuation of that control could see them break the support and potentially test 1.0834.
