Can EUR/USD hold key support at 1.1100 ahead of US CPI data?

Can EUR/USD Sustain Its Gains Near 1.1222 Ahead of US CPI Data?
The US Dollar remains under significant pressure from softer oil prices.
October’s US CPI release is firmly in focus for investors.

Supported by weakness in the US Dollar (USD), the Euro (EUR) retains the previous day’s advance, trading around 1.1222 in Tuesday’s Asian session. Falling oil prices have eased elevated global inflation expectations, weighing on the US Dollar and lending strength to the major currency pair.

With the previous day’s losses largely intact, the US Dollar Index (DXY) stands near 101.67 at the time of writing. The index tracks the Greenback against six major currencies. WTI Oil, meanwhile, has slipped towards $84.65, the low recorded on Monday that marked its weakest level in over two months.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Can the Dollar find support as oil falls and US-Iran deal hopes grow?

The US Dollar remains under pressure, according to analysts at MUFG, who describe the currency as “continu[ing] to weaken by the sharp decline in the price of oil, which is helping to ease market concerns over upside inflation risks.” In MUFG’s assessment, “overall, the latest developments have clearly boosted investor optimism over the prospect of a deal to end the US-Iran conflict,” with the bank arguing that “a less prolonged energy price shock would help to dampen the case for a stronger US dollar.”

Expectations that the Federal Reserve (Fed) will maintain monetary tightening for an extended period are also likely to ease as oil prices decline.

For fresh indications of the inflation backdrop, investors are closely watching October’s United States (US) Consumer Price Index (CPI) release, due at 13:30 GMT. Wednesday’s headline US CPI reading is forecast at 3.9% Year-on-Year (YoY), up from 3.7% previously. A rise is also anticipated in core CPI, which strips out volatile food and energy items, to 2.8% from the previous reading of 2.6%.

The Eurozone, by contrast, is benefiting from cheaper oil, as the continent is a major importer of energy.

EUR/USD Technical Analysis: Which Levels Matter?

Trend outlook: Trading at 1.1223 on the daily chart, EUR/USD remains close to its 20-day exponential moving average (EMA) of 1.1212. This leaves the near-term bias broadly neutral.

Momentum balance: Neither buyers nor sellers currently have a clear advantage, with the Relative Strength Index (RSI) reading of 48.97 close to the midpoint and signalling balanced momentum.

Downside levels: Monday’s low of 1.1138 provides the first support, followed by a more substantial cushion at 1.1104. Should the latter give way, 1.1000 would come into view.

Upside barrier: The high of 1.1273 recorded on 4 November appears to be the key resistance facing the pair.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Inflation: Key questions answered

How is inflation measured?

A rise in the cost of a representative basket of goods and services is measured as inflation. The headline rate is generally reported as a percentage change both month-on-month (MoM) and year-on-year (YoY). By leaving out more volatile components, including food and fuel, core inflation excludes price movements that can be driven by seasonal and geopolitical factors. Economists concentrate on this core measure, which is also targeted by central banks. Their mandate is to maintain inflation at a manageable rate, typically around 2%.

What does the Consumer Price Index (CPI) track?

Changes in the prices of a basket of goods and services over time are tracked by the Consumer Price Index (CPI). The measure is normally reported as a percentage change month-on-month (MoM) and year-on-year (YoY). Central banks target core CPI because it strips out volatile food and fuel components. A core CPI reading above 2% generally leads to higher interest rates, while a reading below 2% usually has the reverse effect. As higher rates support a currency, rising inflation generally strengthens it; falling inflation tends to have the opposite effect.

Why does inflation affect exchange rates?

Higher inflation generally strengthens a country’s currency, while lower inflation tends to weaken it, even if that relationship appears counter-intuitive. To curb elevated inflation, the central bank will usually increase interest rates. Those higher rates draw additional international capital from investors seeking attractive returns on their money.

Why do Gold prices respond to inflation?

Historically, investors sought Gold during periods of high inflation because it retained its value. They still often buy the metal for its safe-haven appeal during severe market turmoil, but this is not usually the pattern. The reason is that central banks respond to high inflation by raising interest rates. As rates rise, holding Gold carries a higher opportunity cost than investing in an interest-bearing asset or keeping money in a cash deposit account, which weighs on the metal. Conversely, lower inflation tends to support Gold by bringing interest rates down and making the precious metal a more viable investment option.