EUR/USD struggles with 1.1800 extends post-EZ CPI, eyes on US PCE

The sentiment around the Euro got hit on the release of softer Eurozone core CPI figures, adding to the ongoing struggle seen in EUR/USD to make a sustainable break above 1.1800 levels.

EUR/USD: Will the recovery last?

The main currency pair has entered a phase of bearish consolidation phase near five-week lows and remains on track to book first monthly loss in six months, with the bulls now awaiting fresh impetus from the US economic releases for the next move lower.

Following the release of dismal Eurozone inflation data, the yield spread between the 10-year Treasury yields and its German counterpart continues to favour the US dollar, as focus now shifts towards the Fed’s preferred inflation gauge release, the core PCE index, which is expected to tick higher to 0.2% in Aug versus 0.1% seen last.

Upbeat core PCE figures are expected to trigger a fresh rally in Treasury yields across the curve, especially the shorter-duration yields, which mimics the US interest rates expectations. As a result, the US dollar could head back to monthly tops of 93.50 against its main competitors, knocking-off EUR/USD towards the key support located near 1.1720 region.

However, on disappointing US macro news, the recovery in EUR/USD may regain momentum, taking the rate back above 1.1850 levels. Apart from the US data releases, the speech due out from the FOMC member Harker will also offer fresh incentives to the greenback.

EUR/USD Technical Set-up  

Karen Jones, Analyst at Commerzbank, explained: “EUR/USD’s outlook remains negative following the recent erosion of the 5 month uptrend and  the 1.1836/23 September lows and we look for further weakness initially to the 1.1662 August low and then the midJune high at 1.1296 and the more important 1.1110 end of May low. Very near term the market is bouncing off the 200 week ma at 1.1721, however intraday rallies should fail in the 1.1817/36 region, the 55 day ma and late August and mid-September lows.”

“Above 1.2092 would target the 50% retracement from the move down from the 2014 high at 1.2168 and the 1.2372 200 month ma, but if seen, that is expected to hold,” Karen added.