- The US Dollar Index rose on Tuesday but lost strength.
- The EUR/USD trimmed losses after holding above the relevant 55-day SMA.
- Upcoming events include Eurozone Retail Sales and a speech by Fed Chair Powell.
The EUR/USD dropped on Tuesday but moved off its lows, rising back to the 1.0700 area. The correction from monthly highs was driven by a stronger US Dollar that lost momentum amid risk appetite and followed a reversal in Treasury yields.
Earlier on Tuesday, the Euro was affected by another negative report from Germany, which showed a 1.4% contraction in Industrial Production in September, surpassing expectations of a more modest decline of 0.1%. Eurostat revealed that the Producer Price Index rose by 0.5% in September, in line with expectations, while the annual rate fell from -11.5% to -12.4%. On Wednesday, the final consumer inflation reading from Germany is due, and it is not expected to show any surprises.
Regarding the US, the focus is on Federal Reserve talk. Officials reiterated the message that data will guide their decisions. On Wednesday, Federal Reserve Chair Jerome Powell will speak, although there may be limited room for new developments.
The Treasury market continues to be volatile, significantly influencing the Greenback. The US Dollar Index reached a peak at 105.77 earlier in the session but then pulled back below 105.50 as US yields reversed and dropped to fresh lows. The combination of lower yields and risk aversion weighed on the US Dollar and favored the rebound in the EUR/USD pair, keeping the bullish bias intact.
EUR/USD short-term technical outlook
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The EUR/USD bottomed at 1.0664, staying above the 55-day Simple Moving Average (SMA), which has been an important reference point in recent months. With prices above this level, bulls have a strong support. The indicators on the daily chart suggest an upside bias, although with limited conviction. The next target emerges around 1.0800, which is not only a psychological level but also the confluence of the 100 and 200-day SMAs.
On the 4-hour chart, the pair rebounded above the 20-SMA, supporting further gains in the coming hours. However, technical indicators offer mixed signals, and there is no clear perspective, suggesting that moves could be limited. A decline below 1.0650 would weaken the outlook for the Euro, while a consolidation above 1.0720 could indicate a test of recent highs.
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