EUR/USD Recovery Eyes Former Support Zone Around April Low

Euro Outlook: EUR/USD

EUR/USD trades to a fresh weekly high (1.0580) even as the US Personal Consumption Expenditure (PCE) Price Index revels persistent inflation, but the recovery in the exchange rate may turn out to be temporary if it struggles to trade back above the former-support zone around the April low (1.0601).

EUR/USD Recovery Eyes Former Support Zone Around April Low

The recent rebound in EUR/USD seems to be unfazed by the PCE report, which showed the headline reading climbing to 2.3% in October from 2.1% per annum the month prior, while the core PCE, the Federal Reserve’s preferred gauge for inflation, widened to 2.8% from 2.7% during the same period.

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It remains to be seen if the Federal Reserve will respond to the rise in the PCE index as the central bank appears to be on track to further unwind its restrictive policy, but the limited reaction to the US data prints may lead to a further recovery in EUR/USD as the exchange rate extends the recent series of higher highs and lows.

Euro Economic Calendar

At the same time, the update to the Euro Area Consumer Price Index (CPI) may keep EUR/USD afloat as both the headline and core reading is expected to increase in November, and evidence of sticky inflation may push the European Central Bank (ECB) to unwind its restrictive policy at a slower pace in order to achieve its one and only mandate for price stability.

With that said, EUR/USD stage a further advance ahead of the ECB meeting on December 12 should the bullish price series persist, but a softer-than-expected CPI report may drag on the exchange rate as it fuels speculation for lower interest rates in the Euro Area.

EUR/USD Chart – Daily

Chart Prepared by David Song, Strategist; EUR/USD on TradingView

• EUR/USD may stage a larger recovery over the remainder of the month as it continues to carve a bullish price series, with a break/close above the 1.0580 (78.6% Fibonacci extension) to 1.0610 (38.2% Fibonacci retracement) region raising the scope for a move towards 1.0660 (61.8% Fibonacci extension).
• Next area of interest comes in around 1.0710 (50% Fibonacci extension) but the rebound in EUR/USD may unravel should the former-support zone around the April low (1.0601) act as resistance.
• Lack of momentum to close above the 1.0580 (78.6% Fibonacci extension) to 1.0610 (38.2% Fibonacci retracement) region may push EUR/USD back towards 1.0480 (100% Fibonacci extension), with a breach below 1.0370 (38.2% Fibonacci extension) bringing the monthly low (1.0333) on the radar.

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--- Written by David Song, Senior Strategist

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