EUR/USD Price Action Setup After US CPI

After a choppy session, EUR/USD ended largely flat after US CPI data provided little cues on the future path of Fed policy, reasserting the broader consolidation backdrop in EUR/USD. While consumer prices rose 6.4% on-year in January, the smallest rise since late 2021, but gained 0.5% on-month, a tad faster than the 0.4% expected.

The US rate futures market continues to price in two more Fed rate hikes, in March and mid-2023. Hawkish remarks by Fed officials on Monday suggested the Fed isn’t close to pausing its rate hiking cycle. The key focus is now on US retail sales data which would provide some guidance on consumer spending amid lingering recession concerns.

On technical charts, the color-coded candles based on trending/momentum indicators suggest the overall trend remains up, and the retreat this month is a consolidation within the uptrend (see “EUR/USD Technical Outlook: Short-term Setback,” published Feb. 6).

Despite the retreat, EUR/USD hasn’t broken any significant price pivot yet, and the pair hasn’t yet retraced even a third of its gains since late 2022 – retracements of 38.2%-50% are considered to be reasonable. They don’t necessarily imply a reversal of the trend.

Most recently, EUR/USD has been hovering in a 1.0650-1.0850 range, also capped by the 200-period moving average on the 4-hourly charts. A potential positive momentum reversal – lower lows in the 14-day Relative Strength Index associated with higher lows in price – raises the prospect of a rebound in EUR/USD (see the daily chart).

Any break above the immediate resistance area of 1.0800-1.0850 could trigger a minor double bottom (the February lows), opening way toward 1.0950. Importantly, the breakout would confirm the immediate downward pressure was fading.

On the downside, immediate support is at the lower end of the recent range of 1.0650. Subsequent support is at the January low of 1.0480. Strong support is on the 200-day moving average (now at about 1.0320). The uptrend since late 2022 is unlikely to reverse while EUR/USD holds above the long-term moving average.

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