EUR/USD traders getting set for FOMC minutes finale

• EUR/USD bulls eye the 1.1020s into the FOMC after US CPI.
• Bears eye a pull back into test 1.0970. 

EUR/USD reached 1.0999, the highest since February 2, and was last at 1.0995, up 0.79% on the day with the US Dollar index, DXY last at 101.51, down 0.62% on the day.

The short covering in EUR continues into the middle of the week as the US Dollar dropped sharply on Wednesday after data showed US Consumer Price Index rose less than expected in March. Traders are of the mind that the Federal Reserve is going to stop raising rates after a possible increase in May and potentially pivot before the end of the year. 

CPI rose just 0.1% last month, below economists’ expectations for a 0.2% gain, and down from a 0.4% increase in February. In the 12 months through March, the CPI increased 5.0%, the smallest year-on-year gain since May 2021. The CPI rose 6.0% on a year-on-year basis in February. Excluding the volatile food and energy components, the CPI increased 0.4% last month after rising 0.5% in February. However, stubbornly high rental prices continued to drive core CPI.

The data comes ahead of the Federal Open Market Committee minutes at the top of the hour and US Retail Sales data on Friday. The minutes will be from the FOMC´s March 21-22 meeting whereby the rate hike was widely viewed as dovish.

´´The distribution of the March dot plot for 2023, however, suggested a more hawkish sentiment across the FOMC. With banking stress now appearing to be somewhat contained, the minutes for this meeting might emphasize this hawkish sentiment given continued elevated inflationary pressures,´´ analysts at TD Securities explained. 

Meanwhile, ahead of the minutes, Fed funds futures traders are pricing in 69% probability that the Fed will raise rates by an additional 25 basis points at its May 2-3 meeting, down from around 76% before the data. 

EUR/USD technical analysis

H4 charts

H1 chart

With 1.1020s on the radar for the bulls, should the bears commit, however, then there will be prospects of a correction back into support near 1.0970. The FOMC minutes could be the catalyst either way.