EUR/USD was rangebound through the first half of the European trading day, holding a tight consolidation just above the 1.1100 handle. Traders are intensely focused as the currency pair approaches a critical stage. Most are particularly honing in on next week’s United States Consumer Price Index (CPI) release, which could significantly shift the market’s positive sentiment.
Leading up to the CPI release, EUR/USD traded near its highs on the day, indicative of a hopeful tone in markets. Today’s core annual reading of the CPI was the same as last month’s, 2.8%, showing that underlying inflation trends are stable. The CPI increased 0.2% on a monthly basis. That’s an improvement over the 0.1% decline last month, but it still fell short of the expected 0.3% increase.
These positive and negative results from the CPI report lead to an unclear, almost contradictory environment for investors. This caused monthly inflation to increase, but the yearly Consumer Price Index (CPI) increase thus far was only 2.3% through the end of April. This figure was a bit short of either the anticipated or last year’s 2.4% rate. Either inflationary pressures could run hotter than anticipated. This would influence the Federal Reserve’s subsequent monetary policy decisions.
On the fundamental side, EUR/USD has been trading below all its 4-hour moving averages. Support retreated and the 20 Simple Moving Average (SMA) crossed below the 200 SMA. This break in the 1.1200 area is a strong break and indicative of a bearish trend. At the time of writing, EUR/USD is trading far below a downward sloping 20 SMA, but it is holding above the 100 and 200 SMAs. Both of these moving averages are parked over 300 pips below today’s trading level. That large gap is an important consideration that traders should incorporate into their strategies.
The larger economic picture is another key element in determining the direction of EUR/USD. Other recent data from Germany and the Eurozone included a larger-than-expected rebound in economic sentiment as measured by the ZEW Survey. This unexpectedly hawkish turn in sentiment can help support the euro against the dollar. Nevertheless, the bullish potential EUR/USD seems limited so far according to technical indicators.
As traders navigate through this consolidative phase around 1.1100, they remain cautious about potential volatility stemming from forthcoming economic reports and geopolitical developments. The restricted bullish outlook suggests that even as clear paths to bullishness exist, heavy opposition still looms strong.