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Euro pares all gains after US CPI comes out

The EURUSD pair eased 0.07% to 1.1803 on Tuesday, September 14. Price action rose to 1.1846 after the release of the US inflation report. The dollar sold off on expectations that the Fed would roll back tapering until November due to a lower-than-expected CPI print.

The DXY fell to 92.29, from which it rallied to 92.66, paring all earlier losses. Market participants apparently took the position that inflation remains quite high and the Fed hawks will continue to insist on scaling down bond purchases at the regulator’s September 22 meeting.

Uncertainty still hangs over the market in the wake of yesterday’s rebound. Market participants are trying to figure out the Fed’s next moves, but their efforts have been unsuccessful.

Today’s macro agenda (GMT+3)

  • 12:00 Eurozone: industrial production (July)
  • 15:30 US: NY Empire State manufacturing index and import prices (August); Canada: CPI (August); ECB Executive Board member Isabel Shnabel speech
  • 16:15 US: manufacturing production (August)
  • 17:30 US: EIA weekly petroleum status report

Current outlook

Today, FX players are focused on US industrial production for August. The reading is expected to decrease from 0.9% to 0.5%. Retail sales data are due out on Thursday. Other issues to watch for include COVID-19 updates, geopolitics and Joe Biden's spending plan.

Technical analysis

Another two key US macro reports are coming up. Market uncertainty will likely persist until September 22. Major currencies are showing mixed performance, with the aussie and the kiwi trading in the red, implying sluggish demand for risk-sensitive assets.

Over the past two days, two diametrically opposed pinbars have formed on the daily TF. The single currency fell to the 55-day SMA (balance line) from 1.1846. The key pair has been trading in the range of 1.1800-1.1815 for several hours. The DXY failed to breach the 92.67 resistance level due to a pullback in US 10-year Treasury yields. Price action suggests a decline in the euro to 1.1790. And unless buyers step in, the fall could gain momentum to 1.1775.

It should also be noted that sterling is on the rise after the UK inflation data, which turned out to be higher than expected. This could lend support to the euro as well. If the 1.18 level holds, a recovery to 1.1820 might be in the cards.

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