EUR/USD Forecast: Can euro capitalize on hot inflation data?
(Eren Sengezer – FXStreet)
– EUR/USD has been fluctuating above parity ahead of key EU inflation data.
– ECB policymakers have voiced their willingness to discuss a 75 bps hike in September.
– ADP will release its new private sector employment report for the US later in the day.
EUR/USD has been struggling to make a decisive move in either direction since the beginning of the week despite having managed to hold above parity. The pair awaits the euro area inflation data as European Central Bank (ECB) policymakers try to steer the markets toward a 75 basis points (bps) rate hike in September.
European Central Bank (ECB) policymaker Klaas Knot said on Tuesday that he was leaning toward a 75 bps rate increase in September but added that he was open to discussions. Similarly, ECB Governing Council member Madis Muller told Reuters that a 75 bps rate hike should be among the options at the next policy meeting given the lack of improvement in the inflation outlook.
Eurostat is forecast to report that the Annual Harmonised Index of Consumer Prices (HICP) rose to 9% in August from 8.9% in July. A higher-than-expected reading could confirm an oversized hike in September and help the shared currency find demand and vice versa. Nevertheless, the market reaction could remain short-lived with investors having largely priced in the hawkish tilt in the ECB’s policy outlook since last Friday.
In the second half of the day, the ADP will release the private sector employment data for the US. The ADP has revised its methodology and this will be the first release using the new method. Hence, it will be difficult to assess this data and what it means for the upcoming Nonfarm Payrolls (NFP) data on Friday.
In the past couple of days, we have witnessed Wall Street’s main indexes turning south despite the upbeat performance of US stock index futures during the European session. Currently, US stock index futures are up between 0.4% and 0.6% and if we see a negative shift in risk sentiment after the opening bell, the greenback should be able to stay resilient against its major rivals.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the four-hour chart declined to 50 after having managed to hold above that level during the Asian session, reflecting buyers’ unwillingness to commit to further euro strength.
On the downside, 1.0000 (psychological level, 20-period SMA) aligns as key support. With a four-hour close below that level, sellers could take action and cause the pair to extend its slide toward 0.9980 (50-period SMA) and 0.9950 (static level).
On the upside, 1.0020 (Fibonacci 23.6% retracement of the latest downtrend) aligns as interim resistance ahead of 1.0050 (static level) and 1.0080 (Fibonacci 38.2% retracement).
EUR/USD: Slight pressures for the Euro, waiting inflation data
(Vasilis Tsaprounis – TopFX)
The common European currency is under slightly pressure approaching the level of 1/1 again, awaiting Eurozone inflation data.
Bets on a possible 75 basis point interest rate hike at the European Central Bank’s next meeting have increased in recent days, and the possible increased numbers on eurozone inflation will greatly impact and support those bets.
The HICP is a Eurozone Inflation Preview index and is expected to be announced increased to 9% on an annual basis, from 8,9% last month.
Any higher number will be treat as a surprise by the markets and many investors most possible will start to bet on Euro waiting a more aggressive stance from European Central Bank on interest rate hikes.
Maintaining a more cautious attitude, we consider that this thought has already been ” price in ” from the market and for this reasonn the last days the common European currency moved slightly upwards, once again surpassing the level of 1/1.
Unless there is some extraordinary surprise and announcement of inflation data well above 9%, we believe that the pressures on the Euro will continue and the pair will move downward breaking the level of 1/1 again.
While the likelihood that the data will show inflation containment with a possible announcement bellow the 8,9% which was the announcement from last month will lead many investors to close euro positions.
However, the strategy to buy the euro on dips remain my favorite, as a detection levels to buy the dollar presents increased difficulty due to strong euro reactions.