EUR/USD consolidates in a range just below 1.0700, focus on the Eurozone CPI

• EUR/USD lacks a firm intraday direction and swings within a range on Tuesday.
• Expectations that the ECB has finished raising rates act as a headwind for the common currency.
• On the other hand, the fall of the Dollar is a key factor that offers support to the pair.
• Investors are reluctant and prefer to wait for the FOMC decision on Wednesday.

The EUR/USD pair is struggling to capitalize on its recent recovery gains recorded over the past two days and is trading within a tight range at the start of the European session on Tuesday. The pair is trading just below the 1.0700 level and remains close to the six-month low it hit following the ECB’s dovish interest rate decision last Thursday.

The ECB opted to raise rates for the tenth consecutive time, by 25 basis points, setting its main rate at an unprecedented level of 4% to counter stubbornly high inflation. However, in the monetary policy statement accompanying the decision, the central bank sent a clear message that the 14-month monetary policy tightening cycle may have already reached its peak. Furthermore, the reduction in CPI and GDP growth forecasts for the coming years (2024 and 2025) reaffirmed expectations that, for the moment, further increases could be ruled out. This, in turn, is seen as a headwind for the common currency, although a softer tone around the US Dollar (USD) continues to lend some support to the EUR/USD pair.

The DXY Dollar Index, which measures the strength of the dollar against a basket of currencies, remains below its highest level since March, reached last week, as traders appear reluctant to open new bullish positions ahead of the meeting. key of central banks. The Federal Reserve (Fed) is scheduled to announce the outcome of the two-day monetary policy meeting on Wednesday and is expected to leave rates unchanged. That said, markets continue to price in the possibility of an additional 25 basis point hike by the end of the year. These expectations have been reinforced by recently released US macroeconomic data and inflation that remains stagnant, which should allow the Fed to keep interest rates higher for longer.

Investors will therefore closely monitor the so-called “dot plot” and inflation expectations. In addition, the statements of Fed Chairman Jerome Powell at the press conference after the meeting will be closely analyzed in search of new clues about the future path of rate increases. This, in turn, will play a key role in the near-term USD price dynamics and help determine the next directional move for the EUR/USD pair. Regarding the risk of key central bank events, the final Eurozone CPI could provide some impetus ahead of the US housing market data (building permits and housing starts). Meanwhile, the aforementioned fundamental backdrop appears to be leaning in favor of the poar bulls.

Therefore, any subsequent bullish move could be seen as a selling opportunity and risks fading quickly. Bears, however, could wait for weakness below the 1.0635-1.0630 area before positioning for an extension of a two-month downtrend from the 1.1275 area, a 17-month high touched in July. Then, the EUR/USD pair could become vulnerable and accelerate the decline to challenge the yearly low, around the 1.0480 zone established in January.

EUR/USD technical levels to watch