EUR/USD Price Forecast: Firmer US Dollar after encouraging inflation data

EUR/USD Current price: 1.1694

• The United States Producer Price Index rose by less than anticipated in August.
• Turmoil in the Middle East and upcoming US first-tier data backs the US Dollar.
• EUR/USD failure to sustain gains above 1.1700 hints at lower lows ahead.

The EUR/USD pair pierced the 1.1700 mark on Wednesday, as the US Dollar (USD) maintained its positive tone throughout the first half of the day, although with a cautious stance as investors awaited United States (US) inflation data.

Meanwhile, turmoil in the Middle East exacerbated the market’s caution after Israel launched an attack on neighbouring countries, aiming for Hamas leaders. The international community repudiated the decision, and even US President Donald Trump criticized the attack.

At the same time, a US court allowed Federal Reserve (Fed)  Lisa Cook to continue operating as a member of the Board. Trump announced a couple of weeks ago that he was firing her, and Cook appealed the decision.

The pair battled around the level ahead of the release of the US Producer Price Index (PPI). The August figures showed that annualized inflation at producers’ levels rose by 2.6%, down from the 3.3% posted in July. The core annual figure printed at 2.8%, easing from a revised 3.4% previously. On a monthly basis, the PPI declined by 0.1%. All figures come in below the market expectations, signaling easing price pressures ahead of the all-important Consumer Price Index (CPI) figures on Thursday, and ahead of the Fed’s decision next week. As a result, the USD came under selling pressure, with the EUR/USD pair spiking below the 1.1700 mark but quickly erasing near-term gains.

EUR/USD short-term technical outlook

The daily chart shows that the pair trades around its opening, having found buyers near a flat 20 Simple Moving Average (SMA) currently at 1.1670. The same chart shows that the 100 and 200 SMAs remain far below the shorter one, but are losing their upward strength. The 100 SMA is pretty much directionless at around 1.1530, reflecting the absence of directional strength. Finally, technical indicators hold above their midlines, but lack momentum. Overall, the EUR/USD pair seems neutral as investors await a fresh catalyst.

Technical readings in the 4-hour chart skew the risk to the downside. The EUR/USD pair trades below a still bullish 20 SMA, which contains advances at around 1.1725. The 100 and 200 SMAs, in the meantime, head nowhere below the current level. Finally, technical indicators grind lower below their midlines, yet the downward momentum is limited.

 Support levels: 1.1670 1.1630 1.1590

Resistance levels: 1.1725 1.1770 1.1825