EUR/USD Price Forecast: Bullish bias remains above 1.1600 ahead of ECB and US inflation
- EUR/USD trades with a positive bias as the USD remains depressed amid the BoJ-inspired JPY rally.
- The uptick lacks bullish conviction as traders keenly await the ECB meeting and US inflation figures.
- The constructive technical setup suggests that the path of least resistance remains to the upside.
The EUR/USD pair attracts fresh buyers during the Asian session on Wednesday, though it lacks bullish conviction and remains confined within the weekly range. Spot prices currently trade near the 1.1630 region, up around 0.05% for the day, as bulls opt to wait for the European Central Bank (ECB) meeting and crucial US inflation figures.
A 25 basis point (bps) rate hike by the ECB on Thursday is considered a done deal, suggesting that the focus will be on the central bank's outlook amid elevated inflation risks. Traders will then confront the release of the US Producer Price Index (PPI) and the Consumer Price Index (CPI) on Thursday and Friday, respectively, which might offer cues about the Federal Reserve's (Fed) policy path. In the meantime, September Fed rate hike bets remain in play, which, along with geopolitical uncertainties, could support the US Dollar (USD) and cap gains for the EUR/USD pair.
From a technical perspective, spot prices hold a constructive short-term bias above the 200-period Exponential Moving Average (EMA) on the 4-hour chart, at 1.1579, and the 38.2% Fibonacci retracement of the 1.1323–1.2072 upswing at 1.1609. Moreover, the Relative Strength Index (RSI) near 58 and a slightly positive Moving Average Convergence Divergence (MACD) reading hint that bullish momentum persists, though not in overstretched territory.
Meanwhile, initial resistance is aligned at the 50.0% retracement at 1.1698, followed by the 61.8% level at 1.1786, with higher barriers at 1.1912 and the 1.2072 swing high. On the downside, immediate support is seen at the 38.2% retracement at 1.1609, ahead of the 200-period EMA at 1.1579. A convincing break below these would expose the 23.6% retracement at 1.1500 and the 1.1323 cycle low.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
EUR/USD 4-hour chart
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
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