EUR/USD consolidates above mid-1.0500s, awaits Eurozone CPI and US PCE Price Index

The EUR/USD pair struggles to capitalize on the previous day's bounce from levels just below the 1.0500 psychological mark or a fresh eight-month low and oscillates in a narrow band during the Asian session on Friday. Spot prices currently trade around the 1.0560 area, nearly unchanged for the day as traders now look to key inflation figures from the Eurozone and the US.

The flash version of the Eurozone Consumer Price Index (CPI) is expected to show that the annualized CPI moderated from 5.3% to 4.8% rate in September. Apart from this, signs of the beginning of the end of the high inflation in Germany – Europe's largest economy – and looming recession risks will reaffirm the view that the next move by the European Central Bank (ECB) is likely to be a rate cut. This, along with the underlying bullish tone surrounding the US Dollar (USD), could attract fresh sellers around the EUR/USD pair and pave the way for an extension of the recent well-established downtrend witnessed over the past two months or so.

The USD Index (DXY), which tracks the Greenback against a basket of currencies, stalls the overnight retracement slide from the YTD peak that followed the release of the rather unimpressive US macro data. According to the final estimate published by the US Bureau of Economic Analysis (BEA), the world's largest economy expanded by a 2.1% annualized pace, in line with the previous estimate and market expectations. The GDP Price Index,  however, fell from 2% to 1.7%, suggesting that price pressure is easing further, and weighed on the USD, though growing acceptance that the Federal Reserve (Fed) will stick to its hawkish stance helped limit losses.

The US central bank warned last week that still-sticky inflation in the US was likely to attract at least one more interest rate hike by the end of this year. Adding to this, Minneapolis Fed President Neel Kashkari said earlier this week that it is not clear yet whether the central bank is finished raising rates amid ample evidence of ongoing economic strength. This, along with the US economic resilience, should allow the Fed to keep interest rates higher for longer. The outlook remains supportive of eevated US Treasury bond yields and favours the USD bulls, suggesting that the path of least resistance for the EUR/USD pair remains to the downside.

Traders, however, might refrain from placing aggressive bets and might prefer to wait on the sidelines ahead of Friday's release of the US Core PCE Price Index – the Fed's preferred inflation gauge. The data will play a key role in influencing market expectations about the next policy move by the US central bank, which, in turn, will drive the USD demand and provide some meaningful impetus to the EUR/USD pair on the last day of the week. Nevertheless, spot prices remain on track to end in the red for the eleventh straight week.

Technical levels to watch