EUR/USD Forecast: Technical Wedge Pattern Forms Before Key US PCE Inflation Report
By Crispus Nyaga, originally published on CryptoRank.io
The EUR/USD currency pair remained largely steady during the early sessions on Thursday, maintaining its recent sideways trajectory. The pair continued trading within a narrow range as market participants prepared for the upcoming Personal Consumption Expenditures (PCE) inflation report from the United States. This report is closely scrutinized by the Federal Reserve and often plays a significant role in shaping monetary policy expectations. Traders and investors worldwide are keenly watching this fundamental indicator, especially amidst a backdrop of shifting economic conditions and evolving central bank policies.
Macroeconomic Landscape
The stability of EUR/USD in recent days comes amid a complex macroeconomic environment characterized by differing economic trajectories and monetary policy stances between the Eurozone and the United States. Several macroeconomic factors are currently influencing the currency pair:
US Economic Factors
– The US economy continues to display signs of resilience. Recent GDP reports highlighted stronger-than-expected economic growth, lifted by strong consumer spending and a robust labor market.
– The Federal Reserve has been closely monitoring inflation data, particularly the PCE Price Index, which is its preferred measure of inflation. The core PCE, which excludes volatile components such as food and energy, is seen as especially significant in determining the pace and timing of future interest rate changes.
– Markets expect the PCE report to show further evidence of slowing inflation, aligning with recent CPI and PPI data, which have also indicated a moderation in price pressures.
– A lower-than-expected reading in the core PCE would reinforce speculation that the Fed is nearing the end of its tightening cycle, potentially applying downward pressure on the US dollar.
Eurozone Developments
– In contrast, the Eurozone economy remains under some pressure. Growth across the bloc has slowed, hindered by weak industrial output and soft consumer spending, particularly in Germany and France, the two largest economies in the region.
– Headline inflation in the Euro area has been declining, although services inflation remains persistently high due to wage growth and supply-side constraints.
– The European Central Bank (ECB) has signaled that it might begin cutting interest rates as early as June, particularly if inflation shows sustained signs of reverting toward its 2 percent target.
– This dovish shift by the ECB has limited the upside potential for the euro, reinforcing the bearish outlook for EUR/USD over the medium term.
Technical Analysis: Symmetrical Wedge Pattern Emerges
From a technical perspective, the EUR/USD pair is currently consolidating within a well-defined symmetrical wedge pattern, which often precedes a breakout in either direction. This pattern is characterized by a series of lower highs and higher lows, signaling a period of market indecision.
Key Technical Highlights
– The EUR/USD has formed a wedge on the 4-hour chart, bounded by declining resistance drawn from the recent swing highs and ascending support from recent lows since late February.
– The pair is currently hovering around the 50-period Moving Average (MA) on the 4-hour chart, which acts as a dynamic support and resistance level.
– The Relative Strength Index (RSI) remains neutral at 50, suggesting that the market is neither overbought nor oversold and poised for a decisive move.
– Immediate resistance is located near the 1.0890 level, a zone that has previously acted as both support and resistance multiple times in March.
– A successful breakout above this resistance zone could open the pathway toward 1.0950 and then 1.1000, levels that coincide with significant Fibonacci retracement zones.
– On the downside, a break below the wedge support at around 1.0780 would increase selling pressure and could drive the price toward 1.0720, followed by the March lows near 1.0660.
The symmetrical wedge pattern often signals a continuation of the prevailing trend, but in the case of prolonged consolidation, it could be indicative of greater market
Read more on EUR/USD trading.