The EURUSD currency pair has gone back and forth, as the potential for more interest rate hikes in the Eurozone offsets the safe-haven qualities of the US dollar, causing a tug of war among traders. With some vital economic releases due on Friday, there could be a clear winner heading into the weekend. 

The tale of monetary policies favours the Euro, as next week’s meeting hangs in the balance between a 25bps hike or a more aggressive 50bps, as the Eurozone has a way to go in bringing their inflation down to the 2% target. In the US, the market expects a 25bps hike in their meeting next week, but there is still uncertainty around when the policy pivot will take place for the Federal Reserve to start cutting rates. On Friday afternoon, German preliminary inflation could provide some clarity for the Euro. Still, the yearly Core PCE Price Index in the US will likely be the catalytic driver for the day, as the market expects the Fed’s preferred measure of inflation to moderate slightly from 4.6% to 4.5%. 

Technical 

On the 4H chart, the up and down price action has resulted in an ascending triangle formation, with psychological resistance at the potential breakout point. The daily pivot at $1.103 acts as resistance, with the 50-day moving average at $1.0996 supporting the triangle formation close to the lower support at $1.0992 (S1). 

Suppose the data released on Friday favours the Euro on expectations of a more hawkish ECB or weaker US dollar. In that case, an immediate bounce to the pivot resistance at $1.103 is on the cards before a move toward retesting the psychological resistance of the ascending triangle around $1.106 (R1). On the fundamental support, the currency pair could break the ascending triangle toward higher resistance at $1.1097. 

Conversely, if the US PCE Index does not contract as expected, the greenback could find additional support to enforce further downside action through the 50-day moving average and S1 to test lower support at $1.0966. However, this move will have a discrepancy between the fundamental and technical outlook for the currency pair, posing additional risk to the potential short trade. 

Summary 

With the currency pair in an ascending triangle, a fundamental backing of a weaker greenback or more hawkish ECB could align the fundamental and technical outlook for a bullish break out of psychological resistance at $1.106 toward $1.109. 

Sources: Koyfin, Tradingview