US index data may support the dollar | 10 October 2024

An event to look out for today:

15:30 GMT+3. USD - Consumer Price Index

EURUSD:

EUR/USD fluctuated in a narrow range below 1.0950 during the Asian session on Thursday and consolidated recent strong losses to a near two-month low reached the previous day.

The US dollar (USD) is near its highest level since 16 August as traders assessed the possibility of another 50 basis points (bps) interest rate cut by the Federal Reserve (Fed) in November. Moreover, current market pricing indicates a more than 20 per cent probability that the US central bank will keep rates unchanged next month, and these expectations were confirmed by the hawkish FOMC meeting minutes released on Wednesday. As a result, US 10-year government bond yields will exceed the 4% threshold, which will support the quid and serve as a headwind for EUR/USD.

On the other hand, the euro currency continues to be pressured by growing confidence that the European Central Bank (ECB) will cut borrowing costs by 25bps at each of its two policy meetings before the end of the year. Moreover, the risk of further escalation of geopolitical tensions in the Middle East should favour the safe-haven US Dollar and indicate that the path of least resistance for EUR/USD lies to the downside. Traders, however, may refrain from new bearish bets and prefer to wait for the latest US inflation data before positioning themselves for further rate cuts.

The all-important US Consumer Price Index (CPI) will be released later in the North American session this Thursday, followed by the US Producer Price Index (PPI) on Friday. This data will play a key role in shaping expectations about the path of the Fed rate cut, which in turn will stimulate demand for the dollar in the near term and give new directional momentum to EUR/USD.

Trading recommendation: Trade mainly with sell orders at the price level of 1.0890.

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