EUR/USD concluded the week at 1.1868, maintaining a tight sideways range for the fourth consecutive session. The market is currently employing a wait-and-see strategy in anticipation of the forthcoming release of January’s US consumer price index. The report may shape anticipations regarding Federal Reserve policy. Projections indicate a deceleration in headline inflation to 2.5% year-on-year, down from 2.7%, with core inflation anticipated to moderate to 2.5% from 2.6%. Earlier in the week, robust employment data validated the resilience of the labor market, although recent jobless claims exceeded expectations. Market participants are currently anticipating that interest rates will hold steady in March, with expectations for two 25-basis-point reductions occurring in the latter half of the year, specifically in June and September.
The overarching context for EUR/USD is evident: the majority of Federal Reserve officials have embraced a cautious approach and are not poised to initiate rate cuts in the near term. In light of prior easing measures and the existing rate range of 3.50-3.75%, inflation persists below 3%, while the economy exhibits ongoing stability. January’s employment data further substantiates the argument for a pause. Although a segment of Fed policymakers advocates for additional easing, they constitute a minority within the broader decision-making body. The market is adjusting its expectations for the initial rate cut to align more closely with July. This upholds the structural support for the dollar in the EUR/USD context. The subsequent actions of the pair will be contingent upon inflation metrics and indications of a genuine deceleration in the US economy.
On the H4 chart, EUR/USD is currently experiencing a phase of sideways consolidation subsequent to the upward momentum observed in January. The price remains confined within the 1.1785-1.1930 range, currently positioned around 1.1870. Bollinger Bands have contracted, indicating a reduction in volatility. The MACD is positioned close to the zero line, suggesting a lack of strong momentum, whereas the Stochastic oscillator is neutral, failing to provide a definitive directional signal. The market is currently positioned within the median of its established range. On the H1 chart, price action indicates a narrow consolidation pattern characterized by intermittent volatility spikes. The recent downward movement was swiftly absorbed by buyers; however, efforts to surpass the 1.1925 level have not succeeded. The price has reached a state of equilibrium close to the midline of the Bollinger Bands. The MACD hovers near the zero line, while the Stochastic oscillator is exhibiting a downward trend within neutral territory. In the short run, range trading continues to be the favored approach.
In conclusion, EUR/USD is currently experiencing a phase of consolidation, confined within its tightest range observed in recent weeks as market participants anticipate the significant US inflation report. The pair finds itself at the intersection of two conflicting dynamics: robust US economic indicators and postponed expectations for Federal Reserve easing (bolstering the dollar), contrasted with a comparatively hawkish European Central Bank position and a policy divergence that is already reflected in pricing (favoring the euro). From a technical perspective, compressed volatility alongside neutral indicators suggests that a breakout could be imminent; however, the direction of this potential movement will hinge solely on the results of tonight’s CPI report. An inflation reading that exceeds expectations would likely drive the pair down to the lower boundary at 1.1785, whereas a softer inflation figure could lead to a retest of resistance around 1.1930. Until that point, the range continues to be the focus.