EUR/USD approaches 1.1100 support, with a break potentially exposing the 1.1000 area.
The dollar jumped on Friday after the Non-Farm Payrolls (NFP) report beat expectations and strengthened the probability of a rate hike from the Fed in December. The NFP showed that 165K new jobs were created, topping the expected 65K; the Average Hourly Earnings jumped 0.4% while the forecast was 0.3%, and the Unemployment Rate dropped to 4.1% from 4.2%.
All three job market indicators surpassed expectations, and this gives the Federal Reserve more leeway to raise the interest rate in December, and possibly in January as well if inflation proves stubborn. At the time of writing, the CME FedWatch tool shows a 76% probability of a 25 bps hike in December.
Economic Calendar Highlights
The US Consumer Price Index (CPI) is the week’s main economic indicator, scheduled for release on Tuesday at 1:30 pm GMT. There are two versions of the CPI – the Core and the headline – and both measure the change in the price that consumers pay for goods and services, but the Core version excludes food and energy from the calculation. These two items tend to be volatile, thus distorting the overall trend. This is the reason why the Fed usually pays more attention to the Core number.
The Core CPI is expected to show a monthly change of 0.2% from the previous 0.3%, and the headline CPI is expected to slow down to 0.3% from the previous 0.6%. Higher CPI numbers would show that inflation is accelerating and would make the case for the Fed to raise the interest rate further, or to keep it higher for longer.
US banks will be closed on Wednesday in observance of Veterans Day, and no economic indicators will be released. Thursday will be another day without notable releases, and the last indicator of the week will be the US Producer Price Index (PPI), scheduled for Friday at 1:30 pm GMT. The PPI has inflationary implications because it measures the change in the price that producers charge for their goods and services. If producers charge more, the additional costs are usually passed on to the consumer. For this release, the Core PPI is expected to drop from 0.7% to 0.3% and the headline PPI is expected to drop from 1.3% to 0.4%.
Technical Outlook – EUR/USD
The pair dropped after another attempt to move above 1.1200, and is now approaching the support at 1.1100. This zone rejected falling prices several times in the recent period, which means that its importance has increased and it will act as immediate support.
The US Dollar showed renewed strength last Friday after the NFP release, and this strength will probably carry over into the current week. A break of 1.1100 – 1.1110 support will probably send the pair lower, into the 1.1000 area, while a rejection would put the spotlight on the 1.1200– 1.1270 resistance zone.
EUR/USD approaches short-term support near 1.1100 as stronger US employment data boosts the dollar and shifts attention to CPI.
