EUR/USD: Grinding higher as traders fade Thursday’s US inflation shock

• EUR/USD is higher in Asia, recouping some of Thursday’s losses
• Traders appear unconvinced by the underlying strength of the latest US inflation report
• Eurozone industrial production, US consumer sentiment headline the data calendar

EUR/USD is climbing in Asia, recovering some of the sharp losses seen following the release of the US September consumer price inflation report.

As seen in the hourly chart, EUR/USD is sticking close to its 200-hour MA having bottomed around 1.0525 towards the close of the North American session. The move appears to reflect broad-based US dollar weakness rather than anything specifically related to the euro, likely reflecting profit-taking and scepticism as to whether strength in US services inflation will persist beyond the short term. Bolstering that view, similar moves are evident in other European and Asian FX names, along with equities and bonds which are also reversing earlier losses.

While traders are fading Thursday’s moves for now, it comes with the warning that it’s not uncommon for European FX desks to reverse moves in Asia, especially if goes against the prevailing trend. Given the violence of the move overnight, some may want to wait for the early European flows before entering a position.

There’s little major visible resistance evident until around 1.0610, the upper end of the boarder medium-term range. 1.0617 and 1.0635 are the next upside targets for potential longs.

On the downside, a break of 1.0525 may see the pair push towards 1.0485, a level where it has done plenty of work around previously. After that, lows hit earlier this month around 1.0450 come into play. Depending on which way the pair moves, a stop either side of 1.0525 will offer capital protection.

Second-tier economic data to end the week

With the big economic events of the week now in the rearview mirror, it’s questionable just how much influence data out later in the session will be on EUR/USD today. Eurozone industrial production is the highlight on the continent while the University of Michigan consumer sentiment survey for October will receive some attention in the States, especially the reading on longer-term inflation expectations.

-- Written by David Scutt

Follow David on Twitter @scutty

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