EUR/USD Forecast: Euro holds its ground ahead of US CPI

EUR/USD has extended its sideways grind and closed flat on Wednesday but started to edge higher early Thursday. Nonetheless, the pair continues to have a hard time making a decisive move in either direction as investors await January inflation data from the US.

In an interview with Die Zeit newspaper on Wednesday, European Central Bank Governing Council member Joachim Nagel voiced his support for a rate hike before the end of the year. "The economic costs of acting too late are significantly higher than acting early," Nagel argued but the shared currency failed to capitalize on these hawkish comments.

On the other side, the US Dollar Index stays in a consolidation phase around 95.50 with the benchmark 10-year US Treasury bond yield holding above 1.9%, allowing EUR/USD to remain within its range.

Later in the session, the US Bureau of Statistics is expected to announce that the annual Consumer Price Index (CPI) rose to 7.3% in January from 7% in December. 

The CME Group FedWatch Tool shows that markets are pricing a 23% chance of a 50 basis points rate hike in March. A stronger-than-expected inflation print could cause investors to price a higher probability of a double-dose hike at the next meeting and provide a boost to the dollar. On the flip side, a soft inflation reading could force the greenback to stay on the back foot and help EUR/USD gain traction.

Meanwhile, draft European Commission forecasts showed that inflation in the euro area is expected to be 3.5% in 2022 before declining to 1.7% in 2023. 

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the four-hour chart is sitting above 50 early Thursday, pointing to a bullish tilt in the near term. However, the pair might need to break above 1.1480 (static level) to convince buyers of another leg higher. Above that level, 1.1500 (psychological level, static level) aligns as the next resistance before 1.1550.

On the downside, supports ate located at 1.1400 (psychological level, Fibonacci 23.6% of the latest uptrend), 1.1350 (Fibonacci 38.2% retracement, 200 period-SMA) and 1.1320 (100-period SMA).