EUR/USD Edges Lower Ahead of US CPI as Dollar Finds Renewed Support
The EUR/USD has been consolidating in a tight range as it edges lower for the second day, ahead of the release of US CPI. Despite yesterday's hawkish rate hike from the ECB, the pair failed to deliver a breakout that traders were hoping for.
The technical analysis shows that the balance of risks remains tilted to the downside due to the energy situation. Key support levels come in between 1.1560 and 1.1580, with a potential revisit of 1.1500 if that region is broken. Resistance comes in around 1.1635/40 area, where the resistance trend of the triangle pattern meets the 200-day average and the highs of the last several days.
The dollar has been finding renewed support ahead of CPI due to rising oil prices and firmer inflation expectations. The US Treasury's latest buyback programme suggests that Treasury Secretary Scott Bessent remains wary of trying to lean too heavily against the bond market, which is easier to sustain if investors do not expect Washington to suppress borrowing costs aggressively.
The next test comes with today's CPI report, where markets expect headline inflation to rise 0.4% month on month in August, taking the annual rate to 3.4%. A benign CPI report would give investors some relief, particularly in equities, but a meaningful upside surprise could have a much larger market impact.