EUR/USD forecast ahead of ECB decision and US inflation data

The EUR/USD will be in the spotlight this week as the European Central Bank (ECB) delivers its interest rate decision. It will also be in focus as the US releases the upcoming consumer inflation data. It was trading at 1.0567, a few points below last week’s high of 1.0620.

US inflation data ahead

The EUR/USD pair will react to the upcoming consumer price index (CPI), which will provide more color on the upcoming Federal Reserve decision. 

Economists expect the data to show that the headline Consumer Price Index (CPI) retreated from 2.6% in October to 2.5% in November. Analysts expect the data to show that inflation eased from 0.25 to 0.1% on a month-on-month basis. 

The core CPI, which excludes the volatile food and energy prices, is expected to come in at 3.2%, lower than the previous 3.3%.

Inflation has remained stubbornly higher in the past few months because of the services sector. For example, the cost of housing and insurance has continued to rise in the past few months.

On the positive side, energy prices have moved downwards, helped by falling oil prices. Brent, the global benchmark, fell to $71, while the West Texas Intermediate (WTI) was trading at $67.2. 

These numbers will come a few days after the US released the relatively strong jobs numbers. The economy added 227k jobs in November, higher than the median estimate of 202k. It was also much higher than the upwardly revised 36k that were created in the previous month.

October’s weak jobs numbers were mostly because of the recent strikes at Boeing, one of the biggest employers in the US. It also happened because of the recent hurricanes in the US.

These economic data will help to determine whether the Federal Reserve will cut interest rates in the next meeting. Most analysts now believe that the bank will not cut rates as it has done in the last two meetings. 

However, some economists expect the bank to cut rates by 0.25% and then start cutting gradually. 

ECB interest rate decision ahead

The next key catalyst for the EUR/USD pair will be the upcoming European Central Bank (ECB) interest rate decision. 

This will be a notable decision since the European economy is not doing all that well. The most recent data showed that the economy expanded by 0.9% YoY in the third quarter, an improvement from 0.6%. It grew by 0.4% on a QoQ basis. 

Some key European economies are not doing well. The French government has largely collapsed, while the manufacturing sector across the region is struggling. For example, Volkswagen has embarked on a major cost-cutting exercise as its growth imploded. 

Therefore, analysts expect the ECB to continue cutting rates this week. If this happens, it will move rates from 3.40% to 3.15% and the deposit facility rate to 3%.

EUR/USD technical analysis

EUR/USD chart by TradingView

The EUR/USD pair formed a double-top pattern at 1.1200 in September. A double-top is one of the most popular bearish signs in the market. It then formed a death cross as the 50-day and 200-day Exponential Moving Averages (EMA) crossed each other. 

The pair then plunged to a low of 1.0333 in November and then bounced back to 1.0610 last week. It has formed an inverse head and shoulders pattern, a popular bullish sign. 

Therefore, the pair may continue rising this week, if bulls manage to push it above the resistance at 1.0610. If this happens, it may continue rising as bulls target the 50-day moving average at 1.0710.