EUR/USD sits near multi-week top, above 1.0600 mark as traders look to US CPI report

• EUR/USD attracts some buying during the Asian session, albeit lacks strong follow-through.
• Dovish Fed expectations keep the USD bulls on the defensive and lend support to the pair.
• Traders seem reluctant to place aggressive bets ahead of the US consumer inflation figures.

The EUR/USD pair edges higher during the Asian session on Thursday and currently trades around the 1.0620-1.0625 region, just below a two-and-half-week high touched the previous day. The uptick, however, lacks bullish conviction as traders seem uncertain over the Federal Reserve’s (Fed) future rate-hike path.

Data released on Wednesday showed that the US Producer Price Index (PPI) for final demand increased by 2.2% over the past 12 months through September as compared to the 2% rise recorded in the previous month. Furthermore, the Core PPI, which strips out food, energy and trade services components, came in at the 2.8% YoY rate, higher than analysts’ estimate of 2.3%. The latest bump in the PPI, meanwhile, was driven by surging energy prices, which have fallen significantly since the start of October and raise hopes for a moderation in the underlying inflation. This, along with the recent dovish remarks by several Fed officials, reaffirmed expectations that the US central bank is nearing the end of its rate-hiking cycle.

The outlook is reinforced by a further decline in the US Treasury bond yields, which keeps the US Dollar (USD) depressed near a two-week low and acts as a tailwind for the EUR/USD pair. The markets, however, are still pricing in the possibility of at least one more Fed rate hike move by the end of this year. Apart from this, the ongoing conflict between Israel and Palestinian Islamist group Hamas lends some support to the safe-haven buck. This, along with speculations that further rate hikes by the European Central Bank (ECB) may be off the table for now, is seen contributing to capping any further gains for the major. Traders also seem reluctant to place aggressive bets ahead of the US consumer inflation figures.

The crucial US CPI report is due for release later during the early North American session this Thursday and will play a key role in influencing the Fed’s next policy move. This, in turn, will drive the USD demand and provide a fresh impetus to the EUR/USD pair. Heading into the key data risks, it will be prudent to wait for strong follow-through buying before positioning for an extension of the pair’s recent recovery move from the YTD low, around the 1.0450-1.0445 region touched last week.

Technical levels to watch