EUR/USD Price Forecast: Likely find direction after US CPI data

On Friday, the Euro (EUR) traded delicately around 1.1608 against the US Dollar (USD). Throughout the European trading session, the currency pair remained within a narrow range of 1.1566 and 1.1641 for more than ten days. However, it is anticipated that direction will emerge following the United States (US) Consumer Price Index (CPI) data release for August at 12:30 GMT.

The US CPI report is projected to reveal that headline inflation remained constant at 3.4% Year-on-Year (YoY), while core figures fell to 2.4% from the prior reading of 2.5%. Investors will closely observe the US consumer inflation data to gather insights about the Federal Reserve's (Fed) monetary policy outlook. Prior to the US CPI data, an intensifying hawkish sentiment towards Federal Reserve interest rate expectations has been observed, driven by the release of the hotter-than-expected Producer Price Index (PPI) report for August.

Meanwhile, the Euro faces challenges in gaining buying interest, as market analysts suggest the likelihood of one additional interest rate increase by the European Central Bank (ECB) in 2023, despite the central bank's policy rate hike of 25 basis points and President Christine Lagarde's caution about persistent price pressures in her announcement on Thursday.

Commerzbank economists have adopted a more hawkish stance on the ECB's policy trajectory, following President Lagarde's recent remarks. They cite the "higher inflation rate anticipated for next year" and President Lagarde's statement that inflation will remain above the 2% target for an "extended period." Consequently, Commerzbank has revised its ECB interest rate forecast, projecting a further 25-basis-point increase in the deposit rate to 2.75% in December, and notably, they no longer expect a reversal of the ECB's rate hikes in the second half of next year.

In the daily chart, EUR/USD is currently trading at 1.1603. The pair trades near the 20-period exponential moving average (EMA) at 1.1606, suggesting a sideways trend. The Relative Strength Index (RSI) falls within the 40.00-60.00 range, indicating a contraction in volatility. On the upside, the principal hurdle for the major currency pair is the high of the previous 10-day range at approximately 1.1641, followed by the August high at 1.1711.

On the downside, the low of the previous 10-day range around 1.1566 serves as the closest support, with the psychological level of 1.1500 being the key support zone.