EUR/USD Forex Technical Analysis – US Producer Inflation Data Sets the Tone

The Euro is edging higher on Wednesday as investors square positions ahead of today’s U.S. producer price inflation (PPI) report, due to be released at 12:30 GMT. Traders are looking for headline PPI to have dipped 0.1% in August. Core PPI is expected to have risen 0.3%.

Even if the PPI data comes out stronger than expected, we don’t expect to see the same volatile reaction like we saw on Tuesday when the red-hot consumer inflation figures were released.

Stronger PPI data will likely solidify the need for a full point rate hike at next week’s Fed policy meeting. This could give the U.S. Dollar another boost. But if it doesn’t, the Euro’s gains would likely be limited.

At 11:35 GMT, the EUR/USD is trading 1.0006, up 0.0039 or +0.39%. On Tuesday, the Invesco CurrencyShares Euro Trust ETF (FXE) settled at $92.07, down $1.33 or -1.42%.

Euro Zone Industrial Production Much Weaker than Expected in July

It was a light day in Europe with only one economic report. Euro Zone industrial production was much weaker than expected in July, mainly because of a sharp drop in the output of capital goods that are used to make finished products and reflect business investment, Reuters reported.

The European Union’s statistics office Eurostat said industrial production in the 19 countries sharing the Euro fell 2.3% month-on-month in July for a 2.4% year-on-year decline.

Short-Term Outlook

Yesterday’s U.S. consumer inflation report took the wind out of the notion that the Fed would begin easing rate hikes while the European Central Bank (ECB) was stepping up its rate increases.

The EUR/USD is going to have a hard time overcoming this week’s high at 1.0198 as long as there is the possibility of a full-point rate hike by the U.S. Federal Reserve next Wednesday. The rally may not resume until after the Fed decision.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through .9864 will change the main trend to down, while a move through 1.0198 will signal a resumption of the uptrend.

The short-term range is .9864 to 1.0198. The EUR/USD is trading under its pivot at 1.0031, making it resistance. This is followed by additional resistance at 1.0077 and 1.0116.

Daily Swing Chart Technical Forecast

Trader reaction to .9967 is likely to determine the direction of the EUR/USD on Wednesday.

Bullish Scenario

A sustained move over .9967 will indicate the presence of buyers. However, any rally is likely to be a labored event with potential resistance levels lined up at 1.0031, 1.0077 and 1.0116.

Bearish Scenario

A sustained move under .9967 will signal the presence of sellers. This could lead to a quick test of the intraday low at .9956. This price is a potential trigger point for an acceleration to the downside with the support cluster at .9864 – .9860 the next target.