With numerous major central banks looking to pause the rate hikes, the ECB looks firmly focused on its fight against inflation and could heed the call by the IMF for a continuation of monetary policy tightening. The stance of the ECB on their fight against inflation has helped the EURUSD trend higher, with the pair currently trading at 0.20% higher for the week and on course to close a fourth week on the green.
The US dollar continues to slide as investors shift their focus towards the US inflation data due later today. The CME FedWatch Tool suggests that the money market is currently pricing in a 71.8% chance that the Fed would raise rates by 25-basis points in May, which could help cap the upside of the recent EURUSD rally.
The 4H chart shows that the EURUSD currency pair, also known as “The Fiber”, is currently having a bullish morning session following the release of the Eurozone retail sales and with the selling pressure on the greenback ahead of the US inflation report later today. Therefore, the Fiber would need the FOMC meeting minutes and the inflation figures to support a breakout above the 1.09664 resistance level, a level of significance for the bulls. A breakthrough above the initial resistance level would bring the 1.10043 resistance level and the major resistance level at 1.10329 into play.
Also, there exists a potential that the US dollar could recover post-inflation rate report if the inflation report comes in hotter-than-expected. The price action could fall below the support level at 1.08866, a level of interest for the bears, and would bring the 23.60% Fibonacci retracement level. The fall below the 23.60% Fibonacci retracement level would signal the presence of sellers and would bring the next support level at 1.0824 into play.
The price action trading above the 50-day moving average does send out bullish signals, but investors should be cautious not to be caught on the wrong side when the US CPI data and FOMC meeting minutes are released. Therefore, an opportunity for the bulls could exist if the price action breaks above the 1.09664 resistance level. For the bears, an opportunity could exist if the strengthening of the greenback sends the price action below the 1.08866 support level.
Sources: TradingView, Reuters, CNBC.
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