EUR/USD: Eyes on inflation differential ahead of a Big week

Sees post-ECB/ US GDP consolidation.
Yield differential holds the key.
FOMC and NFP in focus.

The EUR/USD pair kept its recovery mode intact in Asia, although failed to regain the key support-turned-resistance located near 1.1620 levels, as markets remain cautious stepping into a Big week ahead.

EUR/USD: German data on tap

The spot remains better bid so far this session, as the US dollar remains on the back foot across its main competitors, with the US rates broadly lower on reports of Trump leaning towards Powell as the next Fed Chair. Markets see Jerome Powell as a less hawkish candidate, thus tempering US dollar’s advance seen last week.

However, the recovery gains in EUR/USD appears limited, as the US-German yield differential continue to remain USD-supportive, especially after the ECB’s dovish taper and upbeat US Q3 GDP, which almost sealed in a Dec Fed rate hike.

Looking ahead, the major looks forward to the FOMC decision and NFP report due later this week for the next direction on the pair. In the meantime, the German retail sales and CPI alongside the Fed’s preferred inflation gauge, core PCE price index, will be closely eyed for fresh trading impetus later on Monday.

Also, in focus will remain the political developments around Spain, after the Spanish government sacked Catalonia’s regional government dissolved the Catalan parliament while calling a snap election in December.

EUR/USD Technical Levels

Valeria Bednarik, Chief Analyst at FXStreet explained: “Shorter term and according to the 4 hours chart, the pair seems overstretched towards the downside, with technical indicators within extremely oversold territory, and the price far below its moving averages, favouring also a new leg lower, although an upward corrective movement can't be dismissed. Still, as long as the price remains below the mentioned 1.1660 level, chances are towards a test of the 1.1460 region, a major resistance area between 2015 and 2017. Support levels: 1.1620 1.1585 1.1550 Resistance levels: 1.1720 1.1770 1.1825.”

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