EUR/USD: Focus on inflation differential, monthly candle signals bear exhaustion

30 Aug

EUR/USD: Focus on inflation differential, monthly candle signals bear exhaustion


  • The EUR/USD could find acceptance above 100-day MA today if the US-German inflation differential narrows.
  • August candle carries a long-tail, which indicates bearish exhaustion.

The EUR/USD was flat lined at 1.1704 in Asia, having staged a solid rebound from the bullish 5-day moving average (MA) on Wednesday.

Fed’s Powell downplayed the risk of overheating and defended the gradual rate hike path on Friday, forcing investors to scale back their expectations of faster Fed tightening. As a result, the greenback took a beating in the last four trading days.

The dovish Fed expectations would strengthen further if the Fed’s preferred measure of inflation, scheduled for release at 12:30 GMT, prints below estimates. The July core personal consumption expenditure (PCE) – price index is seen printing at 2.2 percent year-on-year.

The currency pair could pick up a strong bid in the run-up to the US inflation release if the German preliminary consumer price index (CPI) reading, due for release at, 12:30 GMT, beats estimates.

Apart from the inflation figures, the common currency could take cues from the broader market sentiment, as represented by the action in the equity markets.

Technically speaking, the EUR looks set to extend gains as the August candle is carrying a long tail, which indicates bearish exhaustion. If the spot finds acceptance above 1.1733 (August high) in the next few weeks, then a weekly chart bull reversal would be confirmed.

EUR/USD Technical Levels

Resistance: 1.1748 (100-day MA), 1.18 (psychological level), 1.1842 (June 14 high)

Support: 1.1679 (5-day MA), 1.1618 (50-day MA), 1.1602 (10-day MA)

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