- EUR/USD has gone into a consolidation phase following Tuesday's slump.
- The pair could stage a technical correction if it stabilizes above parity.
- US economic docket will feature August PPI data.
EUR/USD has started to move up and down in a tight range below parity on Wednesday after having suffered large losses on Tuesday. Although the near-term technical outlook suggests that the bearish bias stays intact, the pair could stage a correction if it manages to rise above parity and hold there.
Hawkish Fed bets provided a boost to the greenback on Tuesday after the data published by the US Bureau of Labor Statistics revealed that inflation in the US was hotter than expected in August.
The Core Consumer Price Index (CPI), which excludes volatile food and energy prices, was up 0.6% on a monthly basis in August. Additionally, the annual Core CPI climbed 6.3% from 5.9% in July, compared to analysts' forecast of 6.1%. According to the CME Group's FedWatch Tool, markets are currently pricing in a 38% probability of a 100 basis points (bps) Fed rate hike next week.
In the second half of the day, the US Bureau of Labor Statistics will release the August Producer Price Index (PPI) data. In case the Core PPI, which is expected to decline to 7.1% on a yearly basis from 7.6% in July, comes in above the market consensus, the greenback could preserve its strength in the second half of the day.
It's worth noting, however, that US stock index futures are up around 0.4%. If Wall Street's main indexes rebound convincingly after the opening bell, the dollar could stay on the backfoot and help the pair gather recovery momentum.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the four-hour chart started to edge higher toward 50 in the European session, pointing to a loss of bearish momentum. Above 1.0000 (psychological level, 100-period SMA, 50-period SMA), the pair could target 1.0050 (Fibonacci 38.2% retracement of the latest downtrend), 1.0080 (20-period SMA) and 1.0100 (200-period SMA).
On the downside, additional losses toward 0.9950 (static level), 0.9900 (psychological level) and 0.9865 (September 6 low) could be witnessed in case buyers fail to reclaim parity.
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