The EUR/USD pair rose for a fourth straight day on Wednesday but continued to trade within a constrained range as investors take the back seat ahead of the U.S. December Consumer Price Index (CPI) report on Thursday.
In the meantime, hawkish comments from ECB Governing Council member Olli Rehn and the renewed U.S. Dollar weakness fueled the pair's rally.
At the time of writing, the EUR/USD trades at the 1.0765 area, 0.32% above its opening price, having posted a fresh six-month high of 1.0776 at the beginning of the New York session.
Attention remains on U.S. CPI figures. The annual inflation rate is expected to ease to 6.5% in December, down from 7.1% in November. Core inflation is seen slowing to 5.7% from 6.1% prior.
If data confirms a deceleration of the inflation rate – the first decline in over two years for the core gauge – it could fuel expectations of a less aggressive Fed, weighing on yields and the dollar.
According to the WIRP tool, a 25 bp rate increase is completely priced in for the February meeting with less than a 30% probability of a greater 50 bp move.
From a technical perspective, the EUR/USD holds a short-term positive bias according to the daily chart, as the pair is trading above its key moving averages while indicators are gaining upward momentum.
On the upside, the 1.0780 zone stands as the immediate resistance level, ahead of the 1.0800 psychological threshold,s and the 50% retracement of the 1.2266-0.9535 decline at 1.0900.
On the flip side, the following support levels are seen at Tuesday's low at 1.0710, the 20-day SMA around 1.0635, and the 1.0500 zone–broken descending trendline.