EUR/USD Forecast: Euro consolidates near 1.0850 awaiting inflation data

• Eurozone countries will publish preliminary inflation figures for March.
• US dollar rallies modestly despite risk appetite.
• EUR/USD flattens below 1.0850, remains above key daily moving averages.

The pair EUR/USD it reached its highest level in four days at 1.0871 and then pulled back, ending flat around 1.0840. The pair is consolidating as market participants await inflation data from the Eurozone and the United States. The dollar rose during the American session despite the recovery of US stocks.

Rate-setters at the European Central Bank continued to talk about the need to raise interest rates further, also taking into account the situation in financial markets. Forecasts point to a 25 basis point rate hike at the next meeting on May 4. Hardline comments continue to offer support to the euro.

In terms of economic data, Germany reported GfK Consumer Confidence for April. The survey came in at -29.5, below the markets consensus -29.2, showing an indiscernible improvement. Preliminary inflation figures for March will be released on Thursday and February retail sales and March unemployment rate on Friday.

On both sides of the Atlantic, attention is focused on inflation data. On Thursday, Spain and Germany will publish the estimated reading of inflation for March, and on Friday the rest of the countries and the euro zone. In the US, the week’s figure will be the Core Personal Consumption Expenditure Price Index on Friday. In addition, the US Department of Labor will publish weekly claims for unemployment benefits and the Bureau of Economic Analysis, the third estimate of fourth-quarter GDP growth. Also, on Thursday, the European Commission will publish its business and consumer surveys.

Inflation figures will be the main focus of attention in the coming sessions, unless a bank strikes a bell. As the banking crisis abates, the outlook for the euro improves. The EUR/USD bias is bullish, but to get back above 1.0900, for now, a weaker dollar is needed.

EUR/USD Short-Term Technical Outlook

EUR/USD lost its positive momentum; however, the pullback from the 1.0871 high has been limited. The daily chart remains skewed to the upside, but the Euro is struggling to extend the gains. The key zone on the chart is 1.0740/50 – as long as it is above, upside risk dominates.

In the short term, the 4-hour chart favors the bulls, as the price remains above the 20-period SMA that turned north. However, the RSI and Momentum flattened as EUR/USD entered a consolidation phase. Pending relevant events, if the pair breaks and sustains above 1.0865, further gains seem likely. The aforementioned 20 SMA and an uptrend line around 1.0810/15 should limit a possible downside. A bearish extension below the latter should expose the pair to 1.0785.

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