EUR/USD clings to monthly top near 1.1700, Eurozone GDP, inflation eyed

• EUR/USD consolidates the biggest daily jump since May close to monthly top, sidelined of late.
• DXY licks US GDP, ECB-led wounds amid cautious sentiment.
• US Core PCE Inflation, risk catalysts are important too.

EUR/USD treads water around 1.1685, grinds higher heading into Friday’s European session.

The major currency pair cheered the US dollar slump to portray the biggest daily run-up in five months the previous day, also refreshing the monthly peak. However, the short-term key resistances line and 50-DMA challenged the quote’s further advances. The recent inactivity could also be linked to the sluggish markets.

Having witnessed both the key data/events of the week, namely US Q3 GDP and the European Central Bank (ECB) monetary policy, markets reconfirm the previous day’s risk-on mood. The skepticism joins the absence of a deal on US President Joe Biden’s $1.75 trillion stimulus package and cautious sentiment ahead of the top-tier data to weigh on the sentiment. Also challenging the risk appetite are mixed concerns over China’s Evergrande and real-estate market, not to forget fears of Fed tapering.

As per the latest update, US House Speaker Nancy Pelosi conveyed her optimism towards the passage of infrastructure and social spending, climate bills during the phone call to postpone the vote on the infrastructure bill. Further, Global rating giant S&P cites the risk of a default by the 33% of China’s property developers, including Evergrande. The news contrasts Evergrande’s second coupon payment, that too before time.

Additionally, inflation expectations in the US and Eurozone eased after refreshing multi-month high during the early week. However, the current levels are still challenging the respective central bank’s easy-money policies.

Hence, today’s preliminary Consumer Price Index (CPI) data for Eurozone, expected to rise from 3.4% prior to 3.7% for October, will be watched carefully for fresh impulse. Also important will be the initial Q3 GDP data for Germany and the Eurozone. While the bloc’s GDP growth is likely to slow to 2.0% versus 2.2% prior, Germany many keep the reflation fears on the table with 2.2% expected growth compared to 1.6% previous readouts. Should the scheduled economics arrive as stronger, the ECB’s efforts to play down inflation expectations will be rejected, which in turn could help the US dollar to consolidate recent losses.

However, it all depends upon how well the US dollar reacts to the Core Personal Consumption Expenditures (PCE) – Price Index for September, likely to ease to 0.2% from 0.3% prior on the MoM basis.

Read: Personal Consumption Expenditure Price Index September Preview: Transitory inflation becomes permanent

Technical analysis

Given the bullish MACD signals and the firmer RSI line, not overbought, the EUR/USD upside momentum is likely to prevail until staying beyond the previous high of the month near 1.1670. Though, a clear break of an upward sloping trend line from October 04 and the 50-DMA, respectively around 1.1690 and 1.1700, becomes necessary to rule out chances of a pullback.