- US headline inflation slowed to 3.1% in November, as forecast.
- The Fed is expected to keep rates unchanged, new forecasts will be published.
- The EUR/USD finds resistance at the 200-day Simple Moving Average; limited bullish sentiment in the short term.
The EUR/USD rose modestly on Tuesday, but was unable to hold above 1.0800 and remains below the 200-day Simple Moving Average (SMA). It continues to move cautiously as the US Dollar trades with mixed sentiment after US inflation data and ahead of the Federal Reserve's decision.
The US Dollar initially dropped after the release of the US Consumer Price Index (CPI), but then recovered ground. The inflation data came exactly as expected, with the CPI rising 0.1% in November and the annual rate slowing to 3.1%. More inflation data is due on Wednesday with the Producer Price Index (PPI).
The focus is on the Fed, which will announce its decision on Wednesday. In the last meeting of 2023, the central bank is expected to keep rates unchanged. Chair Jerome Powell will likely maintain a cautious tone without considering rate cuts and neither a victory on inflation. However, markets will scrutinize the dot plot to see how FOMC staff project 2024. Such forecasts will weigh on interest rate expectations.
The US Dollar index is moving sideways without a clear direction, unable to break above 104.30. Treasury markets remain quiet, possibly the calm before the storm.
On Thursday, the European Central Bank (ECB) decision will take place. No change is expected, and it could be a non-event, but it would still influence expectations. The interest rate market shows the odds of a rate cut by March above 50%. These expectations continue to weigh on the EUR/USD, limiting any potential rebound.
EUR/USD short-term technical outlook
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The EUR/USD remains supported by the 100-day Simple Moving Average (SMA) and limited by the 200-day average. The pair failed to hold above 1.0800 and quickly pulled back. In the daily chart, technical indicators are mixed, influenced by recent sideways movements. The 20-day SMA at 1.0870 is tuning to the downside.
On the 4-hour chart, the Relative Strength Index (RSI) and Momentum are moving firmly higher, and the price stands above the 20-SMA. Despite this, the Euro appears to be constrained without conviction. Short-term risks are biased to the upside, while above 1.0770. If the Euro rises and consolidates above 1.0805, it would strengthen the short-term outlook favoring more gains, toward 1.0830 and more.
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