The highly anticipated Euro Area inflation could put a smile on the European Central Bank (ECB) authorities’ faces, following a lower reading year-on-year, down to 6.9% versus 8.5%. Inflation could finally be moving lower with the ECB realizing its efforts were never in vain.
The question on every trader’s mind is whether disinflation is now in full swing. If Euro Area inflation begins tapering off, the ECB could open the door to a more dovish stance, leaving the EURUSD currency pair with minimal upside exposure. Traders will be keeping tabs on today’s PCE Index later today, as the preferred inflation gauge of the Federal Reserve paints the picture of inflation in the world’s biggest economy.
The EURUSD currency pair has trended upward, aided by a return of risk sentiment to the market. Price action crossed above the 100-day moving average and formed an ascending channel pattern. Support and resistance are currently at the 1.07473 and 1.09211 levels, respectively.
Due to price trading near resistance, bears could be placed in an ideal position to sell. If bearish traders congregate at the resistance level, they could look to lower the pair, with the 1.07922 level likely, coinciding with the 61.80% Fibonacci Retracement Golden Ratio.
Alternatively, if bullish traders pledge to the upside, a breakout above the 1.09211 level on high volumes could validate a move higher. Bullish traders will likely be interested in taking the pair higher toward the next significance level, the 1.10295 level.
Inflation remains a sensitive topic to the markets and can drive prices in either direction. The Euro is likely to be supported by the ECB’s hard stance against inflation, which is committed to lowering inflation to within a 2% target. However, traders will closely monitor inflation in the U.S. to determine if the Federal Reserve has a similar battle to fight. The EURUSD will likely find a home in the 1.07922 and 1.09211 range in the short term.
Sources: Bloomberg, TradingView