EUR/USD struggles below 1.0600 amid dovish EU data, strong USD on US government shutdown looming

• EUR/USD trades at 1.0572, registering marginal gains of 0.06%, as softer German inflation data and US government shutdown fears impact prices.
• US Core PCE data reveals a 3.9% YoY increase, below the expected 4%, diminishing chances for a November rate hike by the US Federal Reserve.
• A daily close below the 1.0600 mark for EUR/USD could see the pair extending its losses towards the November 30, 2022, swing low at 1.0290.

The EUR/USD clings to its early gains after traveling towards a daily high of 1.0617 but offers dragged prices below the 1.0600 mark. This happened despite data from the United States (US) diminishing the chances for a November rate hike by the US Federal Reserve (Fed). At the time of writing, the major trades at 1.0572 register marginal gains of 0.06%.

EUR/USD experiences a pullback from daily highs, with softer Eurozone inflation data and a potential US government shutdown contributing to the uncertainty around the pair

The US Bureau of Economic Analysis (BEA) revealed the latest inflation report, preferred by the Fed, as the Core Personal Consumption Expenditures (PCE), which excludes volatile items rose by 3.9% YoY, below July’s 4%. The same report showed that headline inflation stood at 3.5%.

A poll from the University of Michigan (UoM) recently showed that consumer sentiment deteriorated while inflation expectations were gradually revised.

In the meantime, Wall Street began to erase its earlier gains, after news emerged of an impending US government shutdown. According to Reuters, “The House of Representatives rejected in a 232-198 vote a measure to fund the government for 30 days to give lawmakers more time to negotiate. That bill would have cut spending and imposed immigration and border security restrictions, Republican priorities that had little chance of passing the Democratic-majority Senate.”

That sponsored a late rally in the Greenback (USD), as the US Dollar Index (DXY) erased its earlier losses, printing minuscule gains of 0.06%, and reclaimed the 106.00 mark.

Across the Atlantic, German inflation data for September was softer than expected, echoing the report for the Eurozone (EU) with its Harmonized Index of Consumer Prices (HICP) hitting 4.3% YoY, down from 5.2% in August, while core figures rose by 4.5% YoY, beneath the 4.8% estimated. Additional data portrayed Germany’s spending as shrinking, as Retail Sales plunged -2.3%, below the -0.7% contraction estimated, and worse than July’s -2.2% drop.

Given the fundamental backdrop, the EUR/USD could extend its losses in the foreseeable future. A daily close below the 1.0600 mark could cement the case for the major to extend its losses past the YTD low toward the November 30, 2022, swing low at 1.0290.

EUR/USD Price Analysis: Technical outlook

The EUR/USD remains downward biased, despite upward correcting towards a daily high of 1.0617. However, if buyers want to test the latest cycle at the September 12 high at 1.0768, they need to achieve a daily close above 1.0600 and surpass key resistance levels. On the downside, also the path of least resistance, the first support would be the September 27 low of 1.0488, followed by the year-to-date (YTD) low of 1.0482.