- A sharp decline of the US Dollar following US inflation data boosted the EUR/USD.
- The medium-term outlook for the Euro gains the US Dollar has improved.
- More US inflation data is due on Wednesday, along with Retail Sales figures.
The EUR/USD experienced a significant surge of around 200 pips due to a Dollar selloff triggered by the release of US consumer inflation data. The pair recorded its largest daily gain in months, and it appears poised to continue its upward movement.
The US Consumer Price Index (CPI) remained unchanged in October, contrary to expectations of a 0.1% increase, and the annual rate rose by 3.2%, below the previous month's 3.7%. Core inflation also slowed more than anticipated. Treasury bonds rallied, and stocks on Wall Street also rose. This combination weighed on the Greenback, causing it to tumble to monthly lows.
While the US economy continued to grow above trend, the Eurozone experienced a contraction of 0.1% during the third quarter. This divergence has supported the strength of the Dollar in recent months. The growth narrative remains unchanged; however, the US inflation data has reinforced market expectations that the Federal Reserve is unlikely to raise rates further.
More US inflation data is due on Wednesday with the release of the Producer Price Index (PPI). Additionally, the October Retail Sales report will be closely watched. Continued signs of easing inflation, coupled with a softer consumer, could keep the US Dollar vulnerable until the narrative shifts back to US economic outperformance.
EUR/USD short-term technical outlook
The daily chart shows the EUR/USD pair rising above the 100-day and 200-day Simple Moving Averages (SMA) for the first time since August. Additionally, the 20-day SMA crosses above the 55-day SMA, further supporting the bullish outlook. The Relative Strength Index (RSI) is in overbought territory, but there are no signs of exhaustion.
On the 4-hour chart, the price seeks the next resistance level, disregarding the overbought readings. The next strong resistance emerges at 1.0900, and above that, at 1.0930. A correction to 1.0850 could occur without jeopardizing the current bullish cycle. Only a decline below 1.0690 would change the upward bias.
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