Introduction
As the U.S. prepares to release its Consumer Price Index (CPI) data on Wednesday, March 12, 2025, market participants are closely watching how this crucial inflation metric might influence the forex market, particularly the EUR/USD pair. The recent price action suggests a potential shift in market sentiment, with the euro gaining strength against a weakening U.S. dollar.
U.S. CPI Data Expectations
The Bureau of Labor Statistics is scheduled to release the February 2025 CPI data on Wednesday. Analysts anticipate a modest increase in inflation, with consensus estimates pointing to a 0.4% month-over-month rise and a year-over-year figure around 3.2%. This aligns with January’s 0.5% increase and 3.0% annualized rate. Factors contributing to this inflation include steady consumer spending and supply chain adjustments.
Market sentiment currently suggests that a lower-than-expected CPI could reinforce the narrative of easing inflation, potentially delaying further Federal Reserve rate hikes. Conversely, a hotter reading might reignite concerns over prolonged monetary tightening.
EUR/USD Technical Analysis
On the technical front, the EUR/USD chart displays a strong bullish momentum. The chart provided indicates that the pair is currently in a Wave 3 impulse to the upside, based on Elliott Wave theory. Wave 3 is typically the strongest and longest of the impulse waves, suggesting further upside potential.
Key Observations:
- Wave Count: The chart illustrates that EUR/USD is in the midst of a powerful Wave 3, with sub-waves suggesting continuation of the trend.
- Recent Breakout: The pair has broken through critical resistance levels, signaling strong bullish sentiment.
- Fibonacci Extensions: Using Fibonacci tools, Wave 3 often targets the 1.618 extension of Wave 1, indicating potential targets around the 1.1000 level.
Fundamental Support for Euro Strength
Beyond technicals, the euro’s strength is also driven by a few fundamental factors:
- ECB Hawkishness: Recent comments from European Central Bank officials suggest a commitment to maintaining elevated interest rates, supporting the euro.
- Improving Eurozone Data: Better-than-expected economic indicators, particularly in Germany and France, are adding confidence to the euro.
- Divergence in Central Bank Policies: While the Federal Reserve might pause rate hikes if inflation cools, the ECB’s stance appears more resolute, contributing to the EUR/USD bullish momentum.
Conclusion: What to Watch This Week
- CPI Data Impact: A soft CPI print could weaken the dollar further, fueling the EUR/USD rally.
- ECB Commentary: Keep an eye on ECB speakers for any indications of policy shifts.
- Technical Levels: If EUR/USD sustains momentum, the next significant resistance could be around 1.1000, with support at 1.0700.
Overall, the EUR/USD appears poised for continued upside in this Wave 3, with bullish momentum likely to persist if inflation data meets or underwhelms expectations.
