The common currency erased most of its gains yesterday as the greenback got stronger after US Inflation data showed an uptick. The CPI numbers surprised the market by showing more inflation than expected, which contradicts with the Fed’s current easing policy. In a normal market environment, higher inflation follows by higher interest rates and not the exact opposite. Looking forward, traders are waiting for the EU Industrial Production data, if it blows past expectations it could alleviate concerns of deeper economic slowdown in the Euro-zone. Germany factory activity had slowed down significantly in May, as a result, the probability of the EU data missing estimates is high. A weaker EU data will likely reinforce expectations of another wave of monetary stimulus from the ECB which will put additional pressure on the Single currency.
The Euro attempted to break back above the trend line resistance (connecting May 30 and June 18 lows) during yesterday’s session, but failed to breach it on closing basis. The bulls will try once again to successfully break above 1.1275 resistance, as 1.13 will likely be their next short-term target. However, if the bears were able to defend this level, then a pullback towards 1.1245 or even lower could be a likely scenario.
Support: 1.1245 / 1.12
Resistance: 1.1275 / 1.13