EUR/USD Consolidation Hinges on US Inflation Data
The EUR/USD pair has been consolidating in a tight range after yesterday's hawkish rate hike from the European Central Bank failed to deliver a breakout. The near-term forecast is tilted to the downside due to renewed support for the US dollar.
Technical analysis shows that the EUR/USD continues to trade inside a triangle, with key support at 1.1560-1.1580 and resistance around 1.1635-1.1640. A break below the former could see prices revisit 1.1500, while breaking above the latter would target 1.1700.
The dollar's renewed strength is attributed to rising oil prices, firmer inflation expectations, and increased pressure in the bond market. The US Treasury's latest buyback program has provided an important clue, with only $5.19bn of the announced $6bn actually conducted. This suggests that Treasury Secretary Scott Bessent remains cautious about suppressing borrowing costs aggressively.
The upcoming CPI report is expected to show headline inflation rising 0.4% month on month in August, taking the annual rate to 3.4%, while core CPI is forecast to ease slightly to 2.4%. A benign reading would give investors relief, but a meaningful upside surprise could have a larger market impact.