EUR/USD Forex Technical Analysis – Edging Higher on Cautious Trade Ahead of US CPI Report

The Euro is trading higher against the U.S. Dollar on Tuesday as investors continued to square positions ahead of tomorrow’s major U.S. consumer inflation report. The price action suggests investors are being a little tentative about taking a position without additional signs that agree with the market’s prediction of a 75 basis-point rate hike by the Fed in September.

After Friday’s surprisingly stronger U.S. Non-Farm Payrolls reports, the chances of a 75-basis point rate hike by the Fed jumped from 22% to 70.5%. This helped drive the U.S. Dollar higher. In order to sustain this momentum or increase the chances of a super-sized rate hike, Wednesday’s U.S. Consumer Price Index (CPI) report and Core CPI report are going to have to meet or exceed expectations.

At 13:58 GMT, the EUR/USD is trading 1.0238, up 0.0043 or +0.43%. The Invesco CurrencyShares Euro Trust ETF (FXE) is at $94.64, up $0.48 or +0.51%.

Economists are predicting U.S. CPI to come in at 0.2% for the month and 8.7% annually, down from 9.1% in June. Core CPI is expected to have jumped 0.5%.

Both are expected to come in well-above the Fed’s 2% mandate, but the annual CPI figure is expected to dip while the Core CPI is expected to continue to trend higher.

Meeting or exceeding report expectations should be supportive for the U.S. Dollar, while weighing on the Euro.

The Fed is expected to continue to raise rates at a faster pace than the European Central Bank (ECB) but tomorrow’s CPI data could determine whether the Fed goes with a 50 basis-point hike or a 75 basis-point hike.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, momentum has been trending lower since the formation of a closing price reversal top on August 2.

A trade through 1.0294 will reaffirm the uptrend. A trade through 1.0097 will change the main trend to down.

The minor trend is also up. A trade through 1.0254 will reaffirm this trend. The minor trend will change to down on a trade through 1.0123.

The minor range is 1.0097 to 1.0294. Its pivot at 1.0196 is acting like support today.

On the upside, the nearest resistance is a pivot at 1.0284, followed by a short-term retracement zone at 1.0363 to 1.0460.

On the downside, the key support area is 1.0123 to 1.0083.

Daily Swing Chart Technical Forecast

Trader reaction to the minor pivot at 1.0196 is likely to determine the direction of the EUR/USD into the close on Tuesday.

Bullish Scenario

A sustained move over 1.0196 will indicate the presence of buyers. The first target is the minor top at 1.0254, followed by a resistance cluster at 1.0284 to 1.0294.

Bearish Scenario

A sustained move under 1.0196 will signal the presence of sellers. If this move creates enough downside momentum then look for the selling to possibly extend into the support cluster at 1.0123, followed by a main bottom at 1.0097 and the Fibonacci level at 1.0083.