Inflation Domination: Upcoming Key Data & Currency Analysis

Downward Path for EUR/USD: A Bounce-or-Break Moment.

The week ahead will be dominated by inflation data, which is always important but more so this time because both the Fed and the European Central Bank warned about additional hikes if inflation stays high.

The US Dollar Index (DXY) has reached a six-month peak, helped by the Fed’s “higher for longer” stance vis-à-vis the interest rate. The Federal Reserve hinted at prolonged elevated rates. In contrast, central banks in the UK and the Eurozone took an unexpectedly cautious stance.

Amidst these developments, the pound and euro are facing significant downward pressure. The euro is set to see its sharpest monthly decline since May, and the pound is on its way to its poorest monthly showing in a year.

Key Data for the Week Ahead

Monday at 1:00 pm GMT, ECB President Lagarde will testify before the Committee on Economic and Monetary Affairs. Volatility may be affected during the testimony, thus caution is advised.

Tuesday at 2:00 pm GMT we will get insights about the financial confidence of Americans with the release of the CB Consumer Confidence survey.

Wednesday will be a calm day and on Thursday we will get the first inflation reading of the week with the release of the Spanish and German CPIs which are set for release at 7:00 am GMT and 12:00 pm GMT, respectively. Later in the day, at 8:00 pm GMT, Fed Chair Powell will speak in Washington at a town hall event organized by the Federal Reserve.

The highlight of the week will be the inflation data released on Friday. The Eurozone Consumer Price Index (CPI) and Core CPI will be announced at 9:00 am GMT, followed by the U.S. Core PCE Price Index at 12:30 pm GMT. These indices serve as the primary measures of inflation for the United States and European economies and significantly influence interest rates and the future direction of their respective currencies.

Technical Outlook – EUR/USD

The pair is on a downward path, currently trading at 1.0645, after a brief climb last week to 1.0730. The main hurdle in front of US Dollar bulls is the support at 1.0635, which was tested earlier this month but it rejected the price successfully.

The last few Daily candles are small and show a lack of momentum. On top of this, the Relative Strength Index (RSI) has not made a significant lower-low since late August, despite the price traveling lower. This is a form of bullish divergence, which warns of a bullish bounce.

The main levels to watch are the support at 1.0635 (if broken, it will bring in additional sellers), followed by the major support at 1.0500. We are currently in a bounce-or-break scenario, which will probably come to a conclusion when the inflation data for the EUR and USD will be released later in the week.