EUR/USD Holds Steady, Awaits US CPI Data

EUR/USD Holds Steady, Awaits US CPI Data

The EUR/USD pair maintained a relatively stable stance during the Asian session on Thursday, hovering around the 1.0620-1.0625 region. While the euro saw some buying interest, the pair lacked strong conviction for a robust move. The hesitance in the market can be attributed to the uncertainty surrounding the Federal Reserve's future monetary policy decisions.

US Producer Price Index (PPI) data released on Wednesday revealed a 2.2% YoY increase in the final demand PPI through September. This marked a slight uptick from the 2% rise recorded in the previous month. The Core PPI, which excludes food, energy, and trade services components, outperformed expectations, reaching a YoY rate of 2.8%, surpassing analysts' estimates of 2.3%. The PPI increase was mainly driven by surging energy prices, though they have declined since the start of October, which raises hopes for moderating underlying inflation.

This dovish shift in tone from several Federal Reserve officials combined with declining US Treasury bond yields has affirmed market expectations that the Fed is nearing the end of its rate-hiking cycle. As a result, the US dollar has been on the defensive, trading near a two-week low. While one more Fed rate hike by the end of the year remains a possibility, the market is pricing in a mere 13% chance of a November Fed rate increase.

Market sentiment may be influenced by the ongoing conflict between Israel and Palestinian Islamist group Hamas, which has provided some support to the safe-haven US dollar. Speculation is also growing that the European Central Bank (ECB) may postpone further rate hikes, further impacting EUR/USD's prospects.

Traders are currently hesitant to make aggressive bets ahead of the release of the highly-anticipated US Consumer Price Index (CPI) inflation data, which is due later in the day. The CPI report is expected to show a 3.6% YoY rise in September, slightly lower than the 3.7% increase seen in August. Core CPI, excluding volatile food and energy prices, is expected to show a 4.1% YoY increase in the same period, down from the 4.3% growth recorded in August.

This inflation data is crucial as it could significantly influence the market's perception of the Fed's rate outlook. With uncertainty surrounding the Fed's future policy moves, investors are closely watching how the US dollar and EUR/USD will respond to the data release. A stronger-than-expected CPI reading could revive expectations of another Fed rate hike, which might boost the US dollar, while a weaker result could weigh on the greenback. The technical scenario also plays a significant role, with key resistance levels and Fibonacci levels shaping traders' outlook.

The EUR/USD pair's next moves will depend on how the CPI data aligns with market expectations and its impact on the Fed's future policies. Traders are bracing themselves for potential volatility in the EUR/USD exchange rate and are closely monitoring the data release to assess market sentiment.

Short-Term Setup | Our preference:

Short positions below 1.07050 with targets at 1.05500 & 1.05000 in extension.

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Trade closed: target reached: