EUR/USD remains below mid-1.0900s, eyes US PCE Price Index data for fresh impetus

• EUR/USD consolidates its recent gains to over a two-week high touched on Wednesday.
• The USD stalls its recent decline near the 200-day SMA support and acts as a headwind.
• The downside seems cushioned as traders await the release of the US PCE Price Index.

The EUR/USD pair oscillates in a narrow trading band through the Asian session on Thursday and consolidates its recent gains to a two-and-half-week high touched the previous day. Spot prices currently trade below mid-1.0900s and remain at the mercy of the US Dollar (USD) price dynamics.

The USD Index (DXY), which tracks the Greenback against a basket of currencies, finds some support near the very important 200-day Simple Moving Average (SMA) and for now, seems to have stalled its recent pullback from a nearly three-month high. This, in turn, is seen as a key factor acting as a tailwind for the EUR/USD pair, though expectations that the Federal Reserve (Fed) will pause its rate-hiking cycle should keep a lid on any meaningful upside for the buck and help limit the downside.

Investors now seem convinced that the US central bank will soften its hawkish stance and the bets were lifted by the disappointing US macro data released on Wednesday. In fact, the ADP reported that the US private-sector employers added 177K jobs in August, much lower than the previous month's downwardly revised reading of 324K. Adding to this, the second estimate showed that the US economy grew by 2.1% annualized pace in the second quarter as compared to the 2.4% original readout.

The shared currency, on the other hand, might continue to draw support from reviving bets for more interest rate hikes by the European Central Bank (ECB). The bets were lifted by the latest consumer inflation figures from Germany on Wednesday, which showed that the annual Harmonised Index of Consumer Prices (HICP) rose 6.4% in August as compared to 6.2% expected. Adding to this, the core inflation rate, which excludes volatile items such as food and energy, remained unchanged from July.

The aforementioned fundamental backdrop supports prospects for the emergence of some dip-buying around the EUR/USD pair and warrants some caution before confirming that the recent bounce from the lowest level since June 13 has run out of steam. Market participants now look forward to the US economic docket, featuring the release of the Core PCE Price Index – the Fed's preferred inflation gauge – and the Weekly Initial Jobless Claims, later during the early North American session.

The data, along with the US bond yields and the broader risk sentiment, will drive the USD demand and provide some impetus to the EUR/USD pair. The focus, however, will remain glued to closely-watched US monthly employment details, popularly known as the NFP report on Friday.

Technical levels to watch