EUR/USD: Recovery remains capped by 1.1750 post-EZ PPI

The EUR/USD pair is seen consolidating the recovery below 1.1750 levels, as the EUR bulls failed to benefit from better-than expected Eurozone factory gate inflation data.

EUR/USD: Will it sustain above 1.1700?

The recovery in the EUR/USD pair from two-month lows of 1.1696 lost legs just shy of 1.1750 barrier, as the corrective move lower in the US dollar across its main competitors stalled, in response to the renewed strength seen in Treasury yields across the curve. The US benchmark 10-year Treasury yields trade near 3-month tops of 2.371, up +1.08% on the day, while the USD index regains 93.50 handle.

Meanwhile, a much better-than expected Eurozone PPI report also failed to provide further impetus to the EUR/USD recovery, leaving the rates slightly bid near 1.1735 levels over the last hour. Eurozone August PPI m/m arrived at 0.3% versus 0.0% previous and 0.1% expected.

In the day ahead, the recovery gains in the spot are likely to remain limited, as the divergent monetary policy outlooks between both continents will continue to remain USD supportive, especially after yesterday’s firm US ISM manufacturing data, which backed the case for a Dec Fed rate hike. Meanwhile, the Fed fund futures yields continued to price the chance of a December rate hike at 77%. 

Markets now eagerly await the speech due out by the FOMC member Powell for fresh USD moves, as slowing volumes amid holiday-thinned markets leave the fx space largely unmotivated.

EUR/USD Technical Set-up  

Technically, the pair remains on track to re-test 1.1696 (2-month lows), with the downside to extend towards 1.1662 (Aug lows), below which next targets lie at 1.1620/10 (key support zone). On the top side, the spot could regain 1.1750 (psychological levels), beyond which doors open up for a test of 1.1785 (horizontal resistance) and 1.1800 (zero figure).