FX.co ★ Trading plan for EUR/USD and GBP/USD on January 12

The market has been stagnant for a couple of days now and only the upcoming US inflation report will bring it out of this state. In fact, that is what investors are waiting for, especially in the light of the statements made by Fed officials last Friday, which hinted that the cycle of rate hikes may end this year. However, the Federal Open Market Committee announced that the refinancing rate could be increased by as little as 25 basis points at its next meeting, alarming everyone, which caused the dollar to weaken precipitously.

Forecasts say inflation will remain unchanged, but consumer price growth will slow down from 7.1% to 6.7%. Some market participants even assume that inflation will slow down to 6.5%, believing in a broader decline. However, this optimism is not good because when data shows that the slowdown is lower than expected, sentiment will change dramatically, which will most likely result in a return in dollar demand and another expectation that the Fed will adopt a 50 basis point cut in rates in the future. If that happens, both euro and pound will have limited growth as the two will be overbought.

Inflation (United States):

Although EUR/USD already hit a new local high, traders ignore all technical signals that it is overbought, looking at a further breakdown of the resistance level of 1.0800.

In GBP/USD, there has been a pullback, but the bullish mood is still present among market participants. A return above 1.2200 will prolong the current trend.