EUR/USD pulls back as hawkish Fed bets stabilise; traders await the key US CPI report

FUNDAMENTAL OVERVIEW USD:The US dollar has been pulling back across the board on potential profit-taking as the hawkish repricing stabilised. The upcoming US CPI report next Friday remains the key risk event that could influence market pricing. As of now, traders are seeing a 58% chance of a rate hike in September. I think only a soft CPI could bring the probabilities below 50% and deter the Fed from hiking at the upcoming meeting. If the probabilities stay at or above 50%, the Fed might be forced to hike regardless because failure to do so would send a dovish message.   EUR:On the EUR side, the ECB is widely expected to hike interest rates by 25 bps at the upcoming meeting, bringing the policy rate to 2.50%. This was also confirmed by "ECB sources" which reported that the central bank is ready to raise interest rates in September but added that there's little appetite to signal further tightening afterwards.This means that the current market pricing of 46 bps of tightening by year-end might be mispriced and the euro could suffer a little if the economic data starts weakening. Nevertheless, the EUR/USD pair will be driven mainly by the US dollar side for now, as that’s where we are seeing more volatility in expectations. EURUSD TECHNICAL ANALYSIS – DAILY TIMEFRAMEOn the daily chart, we can see that EURUSDbounced on the support zone around the 1.1560 level. That’s where the buyers will likely continue to step in with a defined risk below the support to keep targeting the 1.18 handle. The sellers, on the other hand, will want to see the price breaking lower to increase the bearish bets into the major 1.14 support next.EURUSD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAMEOn the 4 hour chart, we have a downward trendline defining the recent pullback into the support. The sellers will likely lean on the trendline with a defined risk above it to keep pushing into new lows, while the buyers will look for a break higher to increase the bullish bets into the 1.18 handle next. EURUSD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAMEOn the 1 hour chart, we have a minor upward trendline defining the pullback into the 4-hour trendline. The buyers will likely continue to lean on the upward trendline with a defined risk below it to keep targeting new highs, while the sellers will look for a break to pile in for a drop into the 1.1560 support targeting a break. The red lines define the average daily range for today.UPCOMING CATALYSTSTodaywe have Fed’s Waller, the US Jobless Claims and the US ISM Services PMI. Tomorrow, we conclude the week with the US NFP report.  This article was written by Giuseppe Dellamotta at investinglive.com.