EUR/USD turned bearish since early February after three very strong bullish months, following a streak of strong data from the US, indicating an economic rebound. The price fell below the 20 SMA (gray) and the 50 SMA (yellow) on the daily chart, which had been acting a ssupport during the bullish momentum, but the decline stalled right at the 100 SMA (green).

A support zone formed around 1.0530s  and last weekwe saw a bounce off that moving average, after FED’s chairman Jerome Powell comments that they will leave the monetary policy on the economic data. As a result, the USD tumbled lower while risk currenceis have been rallying higher in the last few days.

Tomorrow we have the US consumer inflation CPI report to be released which is expected to show a slowdown to 6.0% year-on-year, from 6.4%. On the other hand, Eurozone’s persistent inflation has caught the attention of the markets, and it is clear that there are tough times ahead. Unless there is a significant surprise in consumer prices, investors are likely to remain risk-averse as they anticipate the ECB’s further tightening of monetary policy.

The fact that the ECB’s chief economist expects a rate hike after the March meeting adds to the pessimism. The deposit rate could reach up to 4% in 2023 compared to the current 2.5%, and Nomura analysts predict that the ECB may raise interest rates to 4.25%. This move could have negative consequences, particularly for the corporate sector, which is already facing uncertainty around both economics and geopolitics. Higher bond yields may be required, resulting in elevated costs for companies.

EUR/USD has bounced around 20 pips higher from the lows and the pressure remains bearish for the USD. But, buyers are facing the 50 SMA (yellow) on the daily chart which might turn into resistance. We opened a sell forex signal, hoping for a pullback before tomorrow’s US CPI inflation report.

EUR/USD Live Chart