Bullish View

• Buy the EUR/USD pair and set a take-profit at 1.0670.
• Add a stop-loss at 1.0500.
• Timeline: 1-2 days.

Bearish View

• Set a sell-stop at 1.0560 and a take-profit at 1.0500.
• Add a stop-loss at 1.0670.

(Click on image to enlarge)

The EUR/USD exchange rate remained in a tight range ahead of the upcoming European Central Bank (ECB) decision and US consumer inflation data. The pair was trading at 1.0570, where it has been in the past few days. This price is about 2.30% from its lowest level in November.
 

ECB Decision and US Inflation Data

The main catalysts for the EUR/USD pair will be the upcoming US consumer inflation data and the ECB interest rate decision.

The Bureau of Labor Statistics (BLS) will publish the November inflation report on Wednesday, a figure that will provide more color on price movements.

Economists polled by Reuters expect the data to show that the headline Consumer Price Index (CPI) remained at 0.2% on a MoM basis in October. This will translate to a YoY increase from 2.6% in October to 2.7% on a YoY basis.

Core inflation, which excludes the volatile food and energy prices, is expected to remain at 0.3% on a MoM basis and 3.3% on a YoY basis. If these numbers are accurate, they will mean that inflation is still a challenge in the US.

As a result, they may justify the hawkish tone by the Federal Reserve. After cutting rates by 0.75%, the Fed may decide to leave rates unchanged in its last meeting of the year.

The inflation numbers will come a few days after the BLS released soft-ish jobs numbers. While the economy added over 200k jobs in November, and wage growth accelerated, the unemployment rate rose to 4.2%.

The other key EUR/USD news will be Thursday’s rate decision by the European Central Bank. Analysts expect that the ECB will decide to cut interest rates by another 0.25%, bringing the year-to-date cuts to 1%.
 

EUR/USD Technical Analysis

The EUR/USD exchange rate has remained in a tight range in the past few days. On the four-hour chart, it has moved slightly above the 23.6% Fibonacci Retracement level at 1.0540.

The pair has also moved slightly above the 50-period and 25-period moving averages. It has formed an inverse head and shoulders chart pattern, a popular bullish reversal sign. It is a few points below the pattern’s neckline at 1.0600.

Therefore, the pair will likely have a bullish breakout in the next few days. If this happens, the next resistance level to watch will be the 38.2% retracement point at 1.0670. A drop below the support at 1.0500 will invalidate the bullish view.

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