Piece written by Alexa Smith, Trive Financial Market Analyst 

Throughout the preceding week, a series of pivotal data releases consistently illuminated the strength of the United States economy, bolstering the case for an imminent interest rate hike by the Federal Reserve. Headline inflation surged beyond initial forecasts, rising from 3.2% to 3.7%, while core inflation exhibited a cooling trend from 4.7% to 4.3%. In conjunction, positive outcomes emerged from the release of PPI MoM, Retail Sales, and Initial Jobless Claims, all of which lent substantial support to the prospect of an additional rate increase. As a result, the spotlight now gravitates towards the Federal Reserve’s interest rate decision, slated for release on Wednesday, which carries the potential to exert profound influence over the trajectory of the Euro. 

Nonetheless, amid the flurry of encouraging data, certain indicators delivered less sanguine news, contributing to a modest uptick in the EURUSD currency pair. Notably, the US Michigan Consumer Sentiment exhibited a decline from 69.5 to 67.7, falling short of the expected figure of 69.1. Furthermore, President Christine Lagarde conveyed the ECB’s intent to uphold interest rates at elevated levels for an extended period, with the readiness to hike should economic conditions necessitate such action. If the Fed decides to pause, will the ECB’s hawkish tone drive the Euro out of a downtrend?  

Technical 

A rise in selling volume brought the EURUSD currency pair in line with the 1.06407 support. Since a descending channel pattern is evident on the 4H Chart, a leg down towards the 1.06407 support may edge the currency pair towards the channel’s lower boundary. The EURUSD currency pair has succumbed to dwindling demand due to woeful macroeconomic conditions, starkly contrasting the robust figures displayed by the US.  

If the Federal Reserve decides to pause interest rates, the price action could leg up towards the 1.07106 level at the 50-day moving average, but a move higher may need substantiation from economic indicators in Europe.  

Summary 

The EURUSD currency pair ticked up ahead of the Fed’s interest rate decision, which could bolster the price action towards the 1.07106 resistance at the 50-day moving average if the Fed decides to pause. However, woeful macroeconomic indicators continue to plague Europe, which could promote a pullback towards the channel’s lower boundary if supported by a hike from the Fed.  

Sources: TradingView, European Central Bank, US Bureau of Labour Statistics