EUR/USD retreats from daily tops around 1.1320 as high US PPI increases Fed’s odds of faster taper

• The EUR/USD slides during the New York session, down 0.08%.
• Fed and ECB monetary policy decisions would be crucial on the direction of the EUR/USD.
• Fed: A faster bond taper and signals of the possibility of hiking rates, would be bullish for the USD.
• ECB: An increase in its bond-purchasing program and further pushing back of rates, would be bearish for the EUR.

The EUR/USD slides for the second-consecutive day, trading at 1.1275 during the New York session at press time. The market sentiment has remained downbeat since Wall Street opened. The rise in prices paid by US producers and last week’s consumer inflation topping 1982 highest level puts pressure on the Federal Reserve, as the US central bank heads to its two-day monetary policy meeting.

In the last hours, the EUR/USD pares some of its early gains, which were spurred on positive reports on the Pfizer-BioNTech vaccine giving 70% protection against the Omicron variant after two doses. As of lately, the 1.1300 figure gave way for USD bulls, as US macroeconomic data increased the odds of a Fed faster QE reduction, attributed to consumer and producer elevated prices.

The US economic docket will feature Retail Sales for November and the FOMC monetary policy decision on Wednesday. On Thursday, Markit PMI’s will be revealed on the Eurozone economic docket, alongside the ECB monetary policy decision. 

Central bank divergence between the European Central Bank (ECB) pushing back against higher rates and the Fed in the process of tightening monetary policy seems to favor further EUR/USD weakness. That can be witnessed with US Treasury yields rising during the day, with the 10-year benchmark note rate at 1.44%, edges up one and a half basis points, a tailwind for the greenback.

That said,  the EUR/USD might be headed for a retest of the YTD low around 1.1186 in the week if the Fed decreases the number of purchases by double of what initially decided on its November monetary policy meeting. Contrarily, the EUR could strengthen, sending the pair above 1.1300.

EUR/USD Price Forecast: Technical outlook

The EUR/USD has a downward bias, depicted by the daily moving averages (DMAs) residing above the spot price. Additionally, the descending triangle formation opens the door for a fall towards 1.1040, but it would find some hurdles on the way south.

The first support would be 1.1200. A breach of the figure would expose the year-to-date low at 1.1186. A clear break of that level would expose the 1.1100 area, followed by the 1.1000 figure.

On the other hand, the first resistance is 1.1300, followed by the November 30 high at 1.1382, then the 1.1400 figure, and the 50-DMA at 1.1453.