EUR/USD Forecast: Euro could reclaim 1.1000 on a soft US inflation print

• EUR/USD holds comfortably above 1.0950 after closing in positive territory on Wednesday.
• Technical buyers could take action if the pair manages to stabilize above 1.0990-1.1000.
• Markets await December Consumer Price Index data from the US.

Following a quiet European session, EUR/USD gathered bullish momentum in the second half of the day and closed in positive territory above 1.0950 on Wednesday. The pair holds its ground early Thursday and trades within a touching distance of 1.0990-1.1000 resistance area. 

Improving risk mood caused the US Dollar (USD) to come under selling pressure during the American trading hours. As Wall Street’s main indexes continued to push higher after opening with marginal gains, the USD Index turned south and erased a large portion of the gains it recorded on Tuesday.

Inflation in the US, as presented by the change in the Consumer Price Index (CPI), is expected to edge higher to 3.2% on a yearly basis in December from 3.1% in November. The Core CPI, which strips volatile food and energy prices, is forecast to rise 0.3% on a monthly basis to match November’s reading.

A smaller-than-anticipated increase in the monthly Core CPI could further weigh on the USD and help EUR/USD extend its rebound. On the other hand, a hot core inflation figure could provide a boost to the USD with the immediate reaction.

According go the CME FedWatch Tool, markets are pricing in a 67% probability that the Federal Reserve (Fed) will lower the policy rate by 25 basis points in March. This market positioning suggests that the USD faces a two-way risk heading into the event.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart climbed toward 60, reflecting a build-up in bullish momentum. On the upside, 1.0990-1.1000 (100-period Simple Moving Average (SMA), psychological level) aligns as key resistance area. In case EUR/USD rises above that region and starts using it as support, 1.1050 (mid-point of the ascending regression trend channel) and 1.1100 (psychological level, static level) could be set as next bullish targets.

On the downside, supports are located at 1.0960 (Fibonacci 23.6% retracement of the latest uptrend), 1.0930 (200-period SMA) and 1.0900 (psychological level, lower-limit of the ascending channel).