EUR/USD Forecast: Dollar Lingers to 3-Week Low Post CPI Data

• US consumer prices experienced minimal growth in May.

• Underlying price pressures in the US remained robust.

• The gradual slowdown in inflation allows the Fed to refrain from an interest rate hike.

Today’s EUR/USD forecast is bullish. On Wednesday, the dollar remained close to a three-week low against the Euro following unexpectedly weak US inflation data. This data further solidified the belief that the Federal Reserve would pause later in the day. 

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US consumer prices experienced minimal growth in May, with the annual inflation increase being the smallest over two years. However, underlying price pressures remained robust, supporting the notion that the Fed would keep interest rates unchanged while adopting a hawkish stance.

The Consumer Price Index report, released by the Labor Department on Tuesday, revealed a smaller-than-anticipated rise. Notably, declines in the costs of energy products and services, such as gasoline and electricity, primarily drove this. However, rental prices remained stable and used cars and trucks rose. 

Furthermore, the publication of this report coincided with the commencement of a two-day policy meeting by Fed officials. The CPI increased by 0.1% in May after a 0.4% gain in April. Additionally, gasoline prices dropped 5.6%, while electricity experienced a third consecutive monthly decline. 

Recent data demonstrated a resilient labor market, with solid growth in nonfarm payrolls for May. Although the unemployment rate rose to a seven-month high of 3.7%, it was still an increase from April’s 53-year low of 3.4%. 

Economists believe the gradual slowdown in inflation and the labor market allows the Federal Reserve to refrain from an interest rate hike on Wednesday, marking the first pause since March 2022. 

EUR/USD key events today

Investors eagerly await the all-important Fed meeting, where the central bank will decide on policy. Markets are leaning toward a pause which could see the EUR/USD rise.

EUR/USD technical forecast: Bullish move set to resume above 1.0785

On the charts, the EUR/USD is bouncing higher after retesting the 1.0785 support level. The bias is bullish because the price has made higher highs and lows above the 30-SMA. Additionally, the RSI trades above 50, showing strong bullish momentum.

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Bulls had initially broken above 1.0785 and are now retesting the level. So far, it is showing signs of holding firm. This will allow bulls to edge higher to retest the 1.0825 resistance level.

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