EUR/USD bulls approach bear cage doors ahead of US CPI.

• EUR/USD bulls are running into possible resistance.
• All eyes are on the Federal Reserve, the European Central Bank and the US Consumer Price Index (CPI) for Tuesday.

The pair EUR/USD it was up more than 0.9% at midday on Wall Street, thanks to the weaker dollar and the European Central Bank’s policy meeting on Thursday. Expectations point to a rise of 50 basis points by the ECB, with an aggressive line of speech, which is boosting the single currency, which has gone from a minimum of 1.0650 to a maximum of 1.0748.

Meanwhile, the US dollar continued to bleed hard on Monday as markets bet the Federal Reserve will be less aggressive in raising interest rates to curb inflation. The US authorities have taken measures to try to alleviate the damage caused by the recent bankruptcy of Silicon Valley Bank.

A new Bank Term Financing Program will offer Federal Reserve loans of up to one year to depository institutions, backed by US Treasury bonds and other assets held by these institutions.

Consequently, the US Dollar Index, or DXY, which measures the USD against a basket of major currencies, has fallen to a new low of 103.484, following the fall in US Treasury yields to short term. The two-year yield was paid at a low of 3.997% at one point in the American session and plummeted from the start of the week to a high of 4.534% in the biggest one-day drop since the 2008 financial crisis. on track for its biggest three-day drop since the Black Monday crash of 1987. Meanwhile, Fed funds futures have rallied as traders expect the Fed’s terminal rate to be lower. Markets are pricing as low as 4.14% for December, which was originally set above 5% on Friday. On the other hand, futures show a 21% chance that the Federal Open Market Committee will not raise rates when the announcements are made on March 22.

The US Consumer Price Index will be key.

US Consumer Price Index data will be key this week. It will be released in the US session on Tuesday morning and traders will use the data to speculate on how the Federal Reserve will react later this month when the central bank meets to decide on interest rate setting.

According to analysts at Rabobank, “The release of US CPI inflation data tomorrow is expected to show that price pressures remain elevated at 6% yoy, well above the inflation forecast for the Fed from 2%,” and “if the Fed were to reverse its tightening cycle, it could have a credibility problem on its hands.” Furthermore, for some years Fed officials have argued that monetary policy is not the right tool to address financial stability,” the analysts noted.

”Given the Fed’s announcement over the weekend together with the Treasury to curb contagion risks from the SVB crisis, the FOMC may favor a continuation of the rate hike next week by focusing on risks of inflation,” argued the Rabobank analysts.

We maintain our 1-month and 3-month forecasts of 1.06 and 1.06 EUR/USD respectively, although it is clear that we will closely monitor the future guidance of this month’s Federal Reserve (and ECB) monetary policy meetings,” the analysts explained. .

EUR/USD Technical Analysis

It seems that the euro has more gas in the tank, but it has little left. EUR/USD is approaching a key resistance zone and has precipitously left behind territory that could require a correction to mitigate the uneven bottoms in EUR/USD bids between 1.0600-1.0650 on the daily chart:

On the hourly chart of EUR/USD, a 50% mean reversal of the previous bullish momentum meets trend line support near 1.07:

A break of the EUR/USD trend line could set the stage for the distribution continuation that appears to be taking place on the daily chart with price retracing the previous dominant uptrend.