• EUR/USD recovers further to near 1.1210 as the US Dollar corrects.
• Investors keenly await the US CPI data for September.
• The Fed and the ECB are expected to keep interest rates on hold.

The Euro (EUR) extends its Tuesday’s strong recovery move to near 1.1210 against the US Dollar (USD) during the Asian trade on Wednesday. The major currency pair attracts bids due to the correction in the US Dollar amid the pause in United States (US) Treasury Yields’ rally remaining intact ahead of the Consumer Price Index (CPI) data for September.

10-year US Treasury Yields have corrected to near 5.20% from its recent multi-decade high of 5.36%. The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.1% lower to near 102.10. The DXY has retreated from its yearly high of 102.61 posted on Monday.

According to estimates, both headline and the core CPI grew at a faster pace of 3.6% and 2.5% Year-on-Year (YoY), respectively. Analysts at Societe Generale see the Federal Reserve’s (Fed) policy outlook remaining largely unchanged even if core CPI rises to 2.5% YoY.

Currently, the CME FedWatch tool shows traders are confident that the Fed will leave interest rates unchanged in the policy meeting later this month and will deliver a hike in December.

Meanwhile, French fiscal risks due to ballooning public debt and firm expectations that the European Central Bank (ECB) will keep interest rates unchanged this month will likely cap the upside in the Euro.

According to a Reuters poll conducted October 5-8, 70 of 73 economists expect the ECB to hold its deposit rate at 2.50% on October 29.

EUR/USD Technical Analysis

In the daily chart, EUR/USD trades at 1.1210, holding a bearish near-term bias as spot remains below the 20-period exponential moving average (EMA) at 1.1303.

The pair continues to be capped by this dynamic barrier, which reinforces the broader downside tone while the Relative Strength Index (RSI) at 32.15 hovers just above oversold territory, hinting that selling pressure is still dominant but not yet exhausted.

On the topside, initial resistance is located at the 20-period EMA around 1.1303, and a daily close above this level would be needed to ease the current bearish pressure and open the door to a deeper corrective bounce. On the downside, the October 12 low at 1.1153 is the immedaite support level; a decisive break below the same would expose the pair to 1.1100.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Economic Indicator

Consumer Price Index ex Food & Energy (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as the Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The CPI Ex Food & Energy excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures. Generally speaking, a high reading is bullish for the US Dollar (USD), while a low reading is seen as bearish.

The US Federal Reserve has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.