- The US Dollar remains weak on the back of lower Treasury yields and improved risk sentiment.
- US wholesale inflation and FOMC minutes will gather attention on Wednesday.
- The EUR/USD pair maintains a bullish tone; however, some exhaustion signs emerge.
The EUR/USD climbed to 1.0620, reaching its highest level in two weeks, and then pulled back to the 1.0600 area. The pair continues to be supported by some improvement in market sentiment and the downward correction of the US Dollar. The focus remains on geopolitical concerns and incoming US inflation data.
The US Dollar dropped again, extending its correction from multi-month highs. US yields remain far from their recent peak, which is not helping the Greenback. The 10-year Treasury yield stands at 4.66%, and the 2-year yield is back under 5%. The DXY dropped below 106.00. Stocks on Wall Street were higher again on Tuesday.
The focus now shifts to US inflation data, with the Producer Price Index (PPI) on Wednesday and the Consumer Price Index (CPI) on Thursday. Also relevant is the release of the FOMC minutes on Wednesday, which will provide insights into the Federal Reserve's monetary policy expectations.
Germany will report the final reading of the Consumer Price Index on Wednesday, but no revision is expected from the preliminary reading. The annual rate was reported at 4.5% in September. The combination of the sharp slowdown in inflation over the last two months in Europe and a negative economic outlook suggests that the European Central Bank is done raising interest rates.
EUR/USD short-term technical outlook
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The EUR/USD shows more signs that it may have reached a temporary bottom around 1.0450. However, for this to gain more conviction, the Euro needs to remain above the 20-day Simple Moving Average (SMA), which is currently positioned at 1.0595. Nevertheless, even if such a scenario materializes, the main trend remains bearish.
On the 4-hour chart, the pair maintains a bullish tone and is facing a crucial resistance area around 1.0630, marked by a horizontal level and a downtrend line. A break above this area could open the doors to further gains. Conversely, a failure at this level could indicate that the recovery has faded, with a decline below 1.0560 suggesting further weakness.
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