EUR/USD around 1.0540 due to weak dollar before CPI

• Last week’s PPI Producer Price Index in the United States was more bullish than expected, justifying a rise in the dollar.
• It is estimated that the US CPI Consumer Price Index will cool down, favoring the Euro, due to less tightening by the Federal Reserve.
• US and Eurozone data released this week suggest EUR/USD could rally to 2020 lows.

The Euro (EUR) posts solid gains against the US dollar (USD) on Monday during the American session courtesy of general US dollar weakness. The economic calendar will be replete with monetary policy decisions by the Federal Reserve (Fed) and the European Central Bank (ECB). In addition, the United States (US) inflation report could confirm that rate hikes are keeping inflation in check, which could pave the way for an earlier-than-expected pause. At the time of writing, the EUR/USD pair is trading at 1.0543.

Optimism Keeps Dollar Under Pressure After US PPI Data

Sentiment remains upbeat as shown by positive US stock indices. Economic data last week revealed that the US Producer Price Index (PPI) rose more than expected, up 0.3%m/m for the third straight month, rising 7.4%y/y vs. 7.2% estimate, the report said. the Department of Labor last Friday. Excluding volatile items like food and energy, the PPI rose 0.4% m/m and .2%, both figures beating estimates.

The US CPI Consumer Price Index is estimated to fall below estimates

Meanwhile, the US Consumer Price Index (CPI), due for release on Tuesday, is expected to fall from 7.7% month-ago to a consensus 7.3% yoy, while the so-called core CPI is estimated to fall from 6.3% to 6.1% year-on-year. If the data shows that inflation is cooling, this could trigger the buying of euros, putting pressure on the US dollar. Therefore, the EUR/USD pair could break above the 1.0600 level and test the 2020 yearly low at 1.0635.

The European Central Bank is expected to rise at least 50 basis points

As for the Eurozone, the German ZEW is expected to improve its economic sentiment to -24.6 from -36.7 in November, according to a survey. Meanwhile, European Central Bank (ECB) officials are torn between raising rates 50 or 75 basis points on Thursday. Early signs suggest that the US Federal Reserve could experience an unexpected dollar recession, as a turning point in inflation has emerged. By contrast, it is premature to say the same for the European Central Bank. As a result, EU inflation remains high, with little chance of respite. These contrasting circumstances mean that this week’s central bank meetings could strengthen EUR/USD.

EUR/USD Analysis: Technical Perspective

The EUR/USD daily chart shows the pair trending higher, but has so far failed to test the 2020 yearly low at 1.0636, which proved to be a tough resistance to break. Furthermore, sellers have been leaning towards a seven-month-old downtrend line drawn from the May 2022 highs passing around 1.0580/1.0600 as EUR/USD has struggled to break above the latter. The Relative Strength Index (RSI) is in bullish territory but heading lower, while the Rate of Change (RoC) shows that buyers are gaining momentum. If EUR/USD buyers break above the 1.0600 level, a test of 1.0635 is anticipated, followed by 1.0700. On the other hand, EUR/USD could fall towards 1.0500, before testing the December low of 1.0392.