EUR/USD at Key Inflection Point Ahead of US PPI Data

The euro/US dollar (EUR/USD) currency pair is attempting to break out of an inverse head and shoulders pattern, which was formed when it reached a high of 1.2231/50 on Thursday. However, the pair is still firmly rooted to the support zone of 1.1600/10. If this zone fails to hold, the euro/dollar pair could resume its downward trend.

After a choppy session in the United States yesterday, traders are waiting for key data to be released today. This week, the European Central Bank, the Bank of England, and the Federal Reserve are all set to release important data. In particular, the US economy is the main focus for today.

Data releases in the US will include the November PPI. Analysts expect the Producer Price Index to rise to a level of 56.8. Although this is expected to be a modest decline from last month’s numbers, it will provide a valuable gauge for the Federal Reserve. Additionally, a positive print of the PPI could offer support for the dollar. Similarly, a poor print of the PPI could trigger a move higher in the euro.

The US Dollar index has been moving lower following the weak jobs report that was published on Friday. Meanwhile, the Euro has been climbing on optimism that vaccines can be rolled out quicker. Today, the University of Michigan’s Consumer Sentiment Index is also scheduled for release.

Despite the muted sentiment that was seen in the United States yesterday, EUR/USD is looking forward to next week’s important Central Bank meetings. There will be a raft of central bank speakers including Bostic and Barkin. Aside from the monetary policy speeches, the US PPI is also due for release over the next 24 hours.

The euro/dollar has been in a downward trend since the beginning of September. The euro is also awaiting the release of several key economic reports, which are due later this week. It will be important to see whether the dollar continues to fall or if the market makes a comeback.

In the meantime, EUR/USD has broken its 1.0600 level for a second time this week. Its daily closing price has dropped below the support area of 1.2040/5. At the same time, the euro is testing the 1.1825-50 resistance zone. RSI is near the top of the price zone. Therefore, the pair may be heading back into overbought conditions if it moves higher.

A breakdown of the 1.1755-75 area would confirm a change in the near-term trend. If it breaks below this zone, the price could move towards the 1.1700/10 area.

If the euro/dollar pair continues to rise, it will be important to watch out for a potential Reverse Head and Shoulders pattern. A break below this point could send the euro/dollar pair back down to the 1.1615/ 1.1555 levels. But, if the data releases are good and the Federal Reserve keeps its current policy, the euro/dollar pair is likely to keep climbing.

The euro/dollar will face challenges ahead of the Federal Reserve’s decision to raise interest rates in December. If the data prints rosy, the hawkish policy bets will be reinvigorated. However, if the data turns out to be worse than expected, the euro/dollar pair could struggle to break above 1.06000.