Remains below 1.1200 on weaker French/Spanish CPI; looks at US PCE

• EUR/USD is under renewed selling pressure on Friday amid modest USD strength.
• Softer CPI prints in France and Spain put further downward pressure on the euro.
• USD bulls appear reluctant, limiting losses for the pair ahead of the US PCE price index.

The EUR/USD pair continues its struggle to conquer the 1.1200 mark and attracts some sellers on Friday, reversing some of the positive movement from the previous day. The US dollar (USD) is moving higher amid repositioning trades ahead of the release of the US Personal Consumption Expenditure (PCE) price index and is proving to be a key factor weighing on the currency pair. However, the USD’s gains are fraying amid expectations for more aggressive policy easing by the Federal Reserve (Fed), which in turn should limit downside for the major.

CME Group’s FedWatch tool indicates a more than 50 percent chance the U.S. central bank will cut borrowing costs again by 50 basis points at its November policy meeting. That, to a greater extent, offsets several Fed officials warning this week that rates may not cut as sharply at next meetings and better-than-expected US macro data on Thursday. The Bureau of Economic Analysis released its third estimate of US gross domestic product (GDP), which showed the economy grew at an annualized rate of 3 percent in the second quarter.

Additionally, the US Census Bureau reported that new orders for durable goods were basically flat in August after rising 9.9% in the previous month. Excluding shipping, new orders rose 0.5% in the reported month. Separately, the U.S. Labor Department said initial claims for state jobless benefits fell to 218,000 for the week ended Sept. 21, marking the lowest level since mid-May and suggesting the labor market remained fairly healthy. However, the data failed to provide any respite to the USD bulls.

Meanwhile, expectations that interest rate cuts will boost economic activity, along with a slew of stimulus measures from China, will fuel increased risk and limit gains for the safe-haven greenback. The single currency, on the other hand, weakened in reaction to weaker CPI prints from France and Spain, which reaffirmed bets for a 25 bps rate cut by the European Central Bank (ECB) in October. However, the mixed fundamental backdrop calls for caution before placing aggressive bearish bets around EUR/USD ahead of crucial US inflation data.

Technical perspectives

From a technical perspective, recent repeated failures to build on momentum and find support above the 1.1200 mark is forming a bearish double-top pattern. That said, the positive oscillators on the daily chart make it prudent to wait for some further selling below the immediate 1.1125-1.1120 support before positioning for deeper losses. EUR/USD could then weaken below the 1.1100 threshold to test the weekly low around the 1.1085-1.1080 area. Spot prices could eventually decline to the 50-day simple moving average (SMA) support near the 1.1020 area. It is closely followed by the psychological mark of 1.1000 which, if decisively breached, will suggest that the currency pair has broken out and pave the way for deeper losses.

On the other hand, the 1.1200 mark could continue to act as a strong immediate barrier ahead of the 1.1215 region or a 14-month high reached on Wednesday. Some further buying will be seen as a new trigger for bullish traders and will lift EUR/USD towards the July 2023 high around the 1.1275 region. The momentum could extend further beyond the 1.1300 mark towards the 1.1335 region en route to the 1.1375 area and the 1.1400 round figure.

EUR/USD daily chart