- US producer prices experienced an unexpected decline in October.
- The US Dollar recovers a small portion of the losses from Tuesday.
- The EUR/USD retraced from its monthly highs but maintained a bullish outlook.
The EUR/USD approached the 1.0900 area and turned downwards, correcting from its monthly highs. The slide extended to 1.0830. Despite the daily loss, the bias remains to the upside, supported by negative sentiment around the US Dollar following another US inflation report that solidifies the perspective that the Federal Reserve (Fed) has finished raising interest rates.
The US Producer Price Index (PPI) declined by 0.5% in October, contrary to expectations of a 0.1% increase. The annual rate also slowed from 2.2% to 1.3%. The annual Core PPI fell from 2.7% to 2.4%. The data proves that inflation is cooling, alleviating pressure on the Fed to raise interest rates further. Another report showed that Retail Sales fell by 0.1% in October, which was a better reading than the expected 0.3% decline.
Despite showing softer US inflation, the US Dollar rose after the releases, supported by a rebound in US yields. The Greenback corrected higher but still appears vulnerable. On Thursday, economic data from the US includes the weekly Jobless Claims, Industrial Production, and the Philly Fed report.
The retracement in EUR/USD was modest and is seen as a corrective move. The negative sentiment towards the Dollar reflects market expectations that the Fed will not raise rates again. However, US economic performance is still stronger compared to its European peers.
EUR/USD short-term technical outlook
After posting the highest daily close in over two months, above the key simple moving averages, the EUR/USD currency pair pulled back modestly, holding above 1.0800. The chart analysis suggests an upward bias, with the following key resistance levels at 1.0900 and 1.0945.
On the 4-hour chart, technical indicators indicate that the bearish correction could continue. The Relative Strength Index (RSI) is moving south from an overbought level, and Momentum is retracing. Even if the Dollar’s recovery is extended, it would not change the bullish outlook. Immediate support stands at 1.0830, followed by 1.0780. The crucial dynamic support is represented by an upward trendline at 1.0720.