EUR/USD Trades Sideways Ahead of US CPI Data and Expected ECB Rate Hike
The EUR/USD currency pair has been trading in a tight range for over 10 days, but it's likely to find direction after the release of the US Consumer Price Index (CPI) data on Friday. The US CPI report is expected to show that headline inflation remained steady at 3.4% Year-on-Year (YoY), with core figures dropping to 2.4% from the previous reading of 2.5%. This data will provide fresh cues for investors regarding the Federal Reserve's monetary policy outlook.
Ahead of the US CPI data, a fresh escalation in hawkish Fed interest rate expectations has been seen following the release of the hotter-than-projected Producer Price Index (PPI) report for August. The European Central Bank (ECB) is also expected to raise policy rates further despite President Christine Lagarde's warning of price pressures remaining elevated. Economists at Commerzbank have shifted to a more hawkish view on the ECB's policy path, projecting another 25-basis-point increase in the deposit rate to 2.75% in December.
The EUR/USD pair trades close to the 20-period exponential moving average (EMA) at 1.1606, hinting at a sideways trend. The Relative Strength Index (RSI) hovers inside the 40.00-60.00 zone, indicating volatility contraction. The immediate hurdle for the major currency pair is the high of the previous 10-day range at around 1.1641, followed by the August high at 1.1711.