ended the week at 1.1868, staying within a tight sideways range for the fourth day in a row. The market has adopted a wait-and-see strategy ahead of the release of the US Consumer Price Index for January. The report could influence expectations about Federal Reserve policy.
Forecasts suggest a slowdown in headline inflation to 2.5% year-on-year from 2.7%, while core inflation is expected to decline to 2.5% from 2.6%.
Strong employment data earlier in the week confirmed the resilience of the labor market, although recent jobless claims were higher than expected. Investors are now pricing in rates to remain unchanged in March, followed by two 25 basis point cuts in the second half of the year, in June and September.
The broader context for EUR/USD remains clear: most Fed officials have taken a wait-and-see stance and are not ready to resume rate cuts imminently. Despite previous easing and the current rate range of 3.50-3.75%, inflation remains below 3% and the economy continues to demonstrate stability. January's employment data only strengthens the case for a pause.
While some Fed officials support further easing, they remain in the minority. The market is shifting expectations for the first cut closer to July. For EUR/USD, this maintains structural support for the dollar. The pair's next move will depend on inflation and signs of a real cooling of the US economy.
Technical analysis
On the H4 chart, EUR/USD remains in a sideways consolidation phase after the bullish momentum in January. The price remains within the range 1.1785-1.1930 and is currently trading near 1.1870. The Bollinger Bands have narrowed, indicating a decrease in volatility. The MACD is trading near the zero line, indicating weak momentum, while the stochastic oscillator remains neutral, with no clear directional signal. The market is trading in the middle of the range.
On the H1 chart, the price action reflects tight consolidation with occasional spikes in volatility. Buyers quickly absorbed the latest bearish move, but attempts to break through 1.1925 have failed. The price has stabilized near the middle line of the Bollinger Bands. The MACD remains near zero and the stochastic oscillator is declining into neutral territory. In the short term, range trading remains the preferred strategy.
Conclusion
In short, EUR/USD remains in a state of consolidation, stuck in its tightest range in weeks as markets await the crucial US inflation report. The pair is caught between two opposing forces: resilient US economic data and delayed Fed easing expectations (supporting the dollar), versus a relatively hawkish ECB stance and already priced-in policy divergence (supporting the euro).
Technically, the compressed volatility and neutral indicators indicate that a breakout may be approaching, but its direction will depend entirely on the CPI result tonight. A higher than expected inflation reading would likely push the pair towards the lower bound at 1.1785, while softer inflation could trigger a retest of the resistance near 1.1930. Until then, range is still the game.
By RoboForex Analysis Department
Disclaimer
Any forecast contained herein is based on the author's personal opinion. This analysis cannot be considered trading advice. RoboForex assumes no responsibility for trading results based on the trading recommendations and reviews contained herein.
