EUR/USD bounces off weekly lows though stays below parity, amid US dollar weakness

• EUR/USD reached a weekly low at 0.9955, just below the 20-day EMA.
• US economic data fueled expectations of a 100 bps rate hike, with odds lying at 26%.
• Money market futures estimate an ECB 75 bps rate hike in October.

The EUR/USD slightly recovers from yesterday’s losses, advancing almost 0.31%, due to a soft US dollar after August’s US Producer Price Index (PPI) dropped 0.1%, in line with the consensus, though easing fears of inflation becoming entrenched.

On Wednesday, the EUR/USD began trading near the day’s lows at 0.9955 but climbed toward the daily high above 1.0020 before losing the parity again. At the time of writing, the EUR/USD is trading at 0.9985, above its opening price by 0.19%.

Before Wall Street opened, the US Labor Department reported that prices paid by the producer in August contracted as estimated by 0.1%, flashing signs that the supply chain headwinds are easing. In the meantime, the core reading edged up by 0.4%. In the meantime, annual-based numbers in the Producer Price Index (PPI) decelerated from 9.8% in the previous reading to 8.7%, while the core PPI exceeded estimations of 7%, peaking at around 7.3%.

US economic data released during September further cemented the Fed’s case for a 75 bps rate hike. However, the possibility of a 100 bps increase surfaced after Tuesday’s CPI reported that core inflation was stickier than estimated. According to the CME FedWatch Tool, the odds of a 100 bps rate hike lie at 26%.

In the Euro area side, July’s Industrial Production fell 2.3% MoM, vs. a contraction of 1.1% estimated, showing the deterioration in the bloc’s economy. As a result, the annually-based reading fell 2.4%, against expectations of 0%. Weakness in Germany spread toward other larger economies in the Eurozone. Meanwhile, Short Term Interest Rates (STIRs) have priced in an 80% chance of an ECB 75 bps rate hike in October, amidst a 250 bps tightening over the next 12 months.

What to watch

The US economic calendar will feature unemployment claims, the NY and Philly Fed Business Indices, alongside important Retail Sales figures.

EUR/USD Key Technical Levels