EUR/USD analysis: reality check for dollar's bulls

EUR/USD Current price: 1.2036

  • Hawkish ECB and poor US PPI data push the EUR/USD toward critical 1.2100 level.
  • US December Retail Sales and CPI to determinate dollar's fate.

Dollar's strength, backed by speculation that the Fed will maintain its tightening path, suffered one huge reality check this Thursday, following the release of December PPI figures. The producer price index for final demand fell 0.1% in December, the first decline in over a year. Yearly basis, inflation at factory gates was up 2.6%, against previous 3.1% and the 3.0% expected. Adding fuel to the fire, initial jobless claims for the week ended January 5th resulted at 261K, the highest reading in three months, against the expected 250K. Inflation readings completely offset the hawkish tone of Fed's speakers these days. The EUR/USD pair jumped to 1.2058, its highest for the week, to settle in the US afternoon around 1.2030, as the common currency got an additional boost from ECB's Meeting Minutes, reiterating the upbeat assessment of the economic outlook, but still showing EU policymakers concerned about inflation.

The week is set to end on a high note with the US publishing December Retail Sales and inflation data. Sales are expected to have advanced by 0.4% in the month, while inflation is seen rising 0.2%. If the last misses market's forecast, the greenback will likely fall further and longer.

Technically, the 4 hours chart shows that indicators have reached overbought levels before losing upward strength, but also that the pair bounced from its 100 SMA once again, while it also surpassed its 20 SMA, which gains traction upwards around the 38.2% retracement of the latest weekly bullish run. The pair also settled above the 23.6% retracement of the same rally, around 1.2000, now the immediate support, while the highs set monthly basis during the last couple of years around 1.2100 are the main upcoming resistance, as beyond the level, the pair will likely accelerate north, with the market then eyeing 1.2260 the next long-term resistance.

Support levels: 1.2000 1.1960 1.1920                                                  

Resistance levels: 1.2065 1.2100 1.2140

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