EUR/USD climbs around 1.0540 on soft US Dollar ahead of CPI

• Last week’s Producer Price Index in the United States was hotter than expected, warranting a US Dollar upside.
• US Consumer Price Index is estimated to cool, favoring the Euro, due to less tightening needed by the Federal Reserve.
• US and Eurozone data revealed on the week suggests the EUR/USD could rally to the 2020 lows.

The Euro (EUR) registers solid gains against the US Dollar (USD) on Monday, during the North American session, courtesy of overall US Dollar weakness. A busy economic calendar featuring monetary policy decisions by the Federal Reserve (Fed) and the European Central Bank (ECB) loom. Also, an inflation report by the United States (US) could confirm that rate hikes are taming inflation, which could pave the way for a sooner-than-expected pause. At the time of writing, the EUR/USD is trading at 1.0543.

Upbeat mood keeps the US Dollar pressured after US PPI data

Sentiment remains upbeat, as shown by US equities trading in the green. Last week’s economic data revealed that the Producer Price Index (PPI) for the United States rose more than foresaw up 0.3% MoM for the third consecutive month and increased by 7.4% YoY vs. a 7.2% estimated, as the Department of Labor reported last Friday. Excluding volatile items like food and energy, the PPI jumped by 0.4% MoM and 6.2%, with both figures exceeding estimates.

US Consumer Price Index is estimated to drop below estimates

In the meantime, the US Consumer Price Index (CPI), to be revealed on Tuesday, is expected to fall from 7.7% in the previous month’s reading to a 7.3% YoY consensus, while the so-called core CPI is estimated to drop from 6.3% to 6.1% YoY. If data shows that inflation is cooling, that could trigger Euro buying, exerting pressure on the US Dollar. Therefore, the EUR/USD might climb above the 1.0600 figure and test the 2020 yearly low of 1.0635.

European Central Bank expected to hike at least 50 bps

On the Eurozone front, the German ZEW economic sentiment is expected to improve to -24.6 from -36.7 set in November, according to a poll. Meanwhile, European Central Bankers (ECB) are split between lifting rates by 50 or 75 bps on Thursday. Initial indications suggest that the US Federal Reserve may be liable to an unexpected USD downturn, as a turning point in inflation has been evidenced. Conversely, it is premature to assert the same for the European Central Bank; consequently, the EU's inflation remains high with little chance of respite. These contrasting circumstances imply that this week’s central bank meetings could bolster the EUR/USD.

EUR/USD Price Analysis: Technical outlook

The EUR/USD daily chart depicts the pair as upward biased, but so far has failed to test the 2020 yearly low at 1.0636, which turned out to be a difficult resistance to hurdle. Also, sellers had been leaning to a seven-month-old downslope trendline drawn from May 2022 highs which pass around 1.0580/1.0600, as the EUR/USD has struggled to clear the latter. The Relative Strength Index (RSI) is in bullish territory but aiming lower, while the Rate of Change (RoC) displays that buyers are gathering momentum. If the EUR/USD buyers clear 1.0600, a test of 1.0635 is on the cards, followed by 1.0700. On the flip side, the EUR/USD might drop towards 1.0500, ahead of testing December’s low of 1.0392.