EUR/USD eases below mid.18s as DXY retraces CPI-led losses

After spiking to a daily high at 1.1875 in the early NA session on disappointing inflation data from the U.S., the EUR/USD pair reversed course as greenback started to recover its losses. As of writing, the pair was trading at 1.1835, virtually unchanged on the day.

According to the U.S. Bureau of Labor Statistics, the Consumer Price Index rose 0.5% in September, lifting the annual rate to 2.2% from 1.9%. Nonetheless, these readings failed to meet the market expectations and triggered a USD sell-off, dragging the US Dollar Index to its lowest level since late September at 92.59. Meanwhile, monthly retail sales expanded by 1.6% following August's 0.1% retreat. 

• US: Retail sales for Sep 2017 were $483.9 billion, an increase of 1.6% from the previous month
• US: CPI for all items increases 0.5% in September as gasoline index rises sharply

However, later in the session, the University of Michigan released the results of the latest survey of consumers, which showed that the headline Consumer Sentiment Index advancing to its highest level in more than 13 years at 101.1. Moreover, despite the softer-than-expected inflation figures, the December rate hike odds didn't change, allowing the greenback to erase its losses. According to the CME Group FedWatch tool, markets are still pricing an 81.7% probability of a 25 bps rate hike before the end of the year. At the moment, the DXY is at 92.85, losing only 0.1% on the day.

• US CPI and retail sales support December rate hike story - ING

Although the pair retreated on Friday, it remains on track to close the week higher after four straight negative closings. With no more data left in the remainder of the session, the pair is likely to extend its consolidation.

Technical outlook

The RSI indicator on the daily graph continues to move sideways near the 50 mark, suggesting a near-term neutral outlook. The first technical support for the pair could be seen at 1.1805/00 (20-DMA/psychological level) ahead of 1.1710 (100-DMA) and 1.1665 (Oct. 6 low). On the upside, resistances align at 1.1880 (Oct. 12 high), 1.1940 (Sep. 25 high) and 1.2000 (psychological level). 

• EUR/USD upside seen struggling near 1.1900/20 – Commerzbank