EUR/USD Forecast: Battle around parity continues ahead of central banks’ decisions

EUR/USD Current Price: 1.0022

• Market payers stand cautious ahead of central banks’ decisions.
• US policymakers will sacrifice growth to bring inflation down to 2%.
• EUR/USD keeps hovering around parity, but bears retain control.

The EUR/USD pair spent the day seesawing around parity, ending Monday little changed at 1.0020. It bottomed at 0.9965, recovering later amid Wall Street pushing away from early lows. Financial markets are in wait-and-see mode ahead of the US Federal Reserve’s monetary policy announcement on Wednesday, pricing it another 75 bps rate hike after local inflation refused to give up. According to official data, the Consumer Price Index rose by 8.3% in the year to August, below the previous 8.5% but missing the expected 8.1%. Conversely, the core reading jumped from 5.9% to 6.3% YoY, worse than anticipated.

Such figures triggered speculation the fed funds rate will likely rise above 4% by year-end, as US officials made it clear that taming inflation is their main goal, regardless of the economic pain higher rates may cause. However, the US Federal Reserve is not the only central bank that will decide on monetary policy this week. The Bank of England, the Bank of Japan, and the Switzerland National Bank are also expected to announce quantitative tightening measures this week.

The macroeconomic calendar had nothing of interest to offer, although the EU published July Construction Output, up by 1.5% YoY. On Tuesday, Germany will publish the August Producer Price Index, while the EU will unveil the Current Account for the same month. Finally, the US will unveil August Building Permits and Housing Starts.  

EUR/USD short-term technical outlook

The EUR/USD pair maintains its bearish bias despite the lack of directional strength at the time being. In the daily chart, the price rests above a flat 20 SMA, while the longer moving averages maintain their downward slopes well above the current level. At the same time, technical indicators are neutral-to-bearish, with the Momentum within neutral levels and the RSI at around 46.

For the near term, and according to the 4-hour chart, the risk skews to the downside, although the pair needs to break below 0.9950 to confirm a bearish extension. EUR/USD is currently hovering around directionless and converging 20 and 100 SMAs, while the 200 SMA heads modestly lower at around 1.0070. Technical indicators, in the meantime, remain flat around their midlines, failing to provide directional clues after four days of consolidation.

Support levels: 0.9950 0.9910 0.9860

Resistance levels: 1.0045 1.0090 1.0120

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