The euro pair is strong as investors believe a strong eurozone economic recovery will outweigh the risks from the global recession. European investors were comforted last week by the European Central Bank raising its growth and inflation forecasts for this year and beyond as the eurozone economy recovers faster than expected from the pandemic shock. Economic-sensitive sectors, including banks, oil and gas and construction and materials, rose 1% to 1.3%, while utilities rose 1.2%.

The attention of Euro traders are now on the next meeting on October 28 and, most importantly, on December 16. In particular the December meeting can end with a summary of the central bank’s support for the “direct” eurozone economy. Nevertheless, now that the ECB has revised its inflation target to 2022 and has “reconsidered” its epidemic emergency purchase plan, the euro will likely be heading upwards, especially if the ECB’s hawks are pressed to act quickly.

At the same time European Union’s (EU) rush towards deeper economic ties with Indo-Pacific nations, reported by Nikkei Asia. The news said, China is at the center of the EU’s concerns, although the document calls for a ‘multifaceted engagement with Beijing and is restrained in its direct criticism. It added the draft strategy warns instead that tensions around contested territories and maritime zones, such as in the South China Sea and the Taiwan Strait, ‘may have a direct impact on European security and prosperity. But this news did not have a impact on Euro pair.

On the other hand greenback is rough ahead of the key US data, namely the Consumer Price Index (CPI) for August later in the session for clues on the timing of policy tightening by the Federal Reserve. The resolution that followed Fed’s Jerome Powell’s Jackson Hole speech recently disappeared after US data, mainly on secondary employment publications and the producer price index (PPI). Still, the monthly employment report was sluggish and the Fed is challenging the hawks.

The immediate focus is on the US consumer price data which will be released at 1230 GMT. Economists expect the CPI, the key indicator of eliminating turbulent energy and food prices, to rise to 0.3% August from July. Its annual inflation fell to 4.2% from 4.3% in July. Overall consumer price inflation is expected to fall to 5.3% from 5.4% in July. Inflation is at an extraordinary level as the core CPI is still above 4%. Powell has been saying that inflation will be volatile since March but the central bank will probably have to correct its wording in the next policy statement. The central bank will hold its policy meeting next week.

However, Patrick Harker, chairman of the Federal Reserve Bank of Philadelphia, avoided signaling what the US Federal Reserve would do next week, but quickly cut back on buying US dollars earlier in the week. On the contrary, DXY recently challenged the bulls by easing the US-China conflict and reducing Iran’s readiness to hand over trial rights at the nuclear plant to the Greenback’s asylum claim. On the same line were stimulus and vaccine optimism, as well as cautious mood amid a light calendar and before the key data.

EUR/USD 4 Hour Chart:

Support: 1.1781 (S1), 1.1751 (S2), 1.1733 (S3).

Resistance: 1.1828 (R1), 1.1846 (R2), 1.1875 (R3).

Amidst these above catalysts the greenback remains downtrend ahead of Fed’s tapering talks and traders are now waiting for US inflation data which can change the move. As of now we expect a bullish trend for EUR/USD.