1.1100: EUR/USD key support in focus ahead of US CPI release

1.1222: EUR/USD retains gains before US CPI release.
Falling oil prices continue to exert significant pressure on the US Dollar.
October US CPI figures are firmly in investors’ focus.

EUR/USD is holding near 1.1222. During Tuesday’s Asian session, the Euro (EUR) retains the previous day’s advance against the US Dollar (USD). Falling oil prices are easing heightened expectations for global inflation and weighing on the US Dollar, underpinning the major currency pair.

Near 101.67 at the time of writing, the US Dollar Index (DXY) remains close to the previous day’s losses. The index tracks the Greenback against six major currencies. WTI Oil, meanwhile, has fallen towards $84.65, the low recorded on Monday and its weakest level in over two months.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

US Dollar loses support as oil falls and US-Iran deal hopes build

According to MUFG analysts, pressure on the US Dollar persists, with the currency “continu[ing] to weaken by the sharp decline in the price of oil, which is helping to ease market concerns over upside inflation risks.” On prospects for an agreement, MUFG added that “overall, the latest developments have clearly boosted investor optimism over the prospect of a deal to end the US-Iran conflict,” and argued that “a less prolonged energy price shock would help to dampen the case for a stronger US dollar.”

Expectations that monetary tightening by the Federal Reserve (Fed) will persist are also likely to weaken as oil prices decline.

Due at 13:30 GMT, October’s United States (US) Consumer Price Index (CPI) figures are being closely watched for fresh indications of inflation’s current trajectory. Wednesday’s headline US CPI reading is expected at 3.9% year-on-year (YoY), up from 3.7% previously. Excluding volatile food and energy items, core CPI is also forecast to rise, reaching 2.8% compared with the previous 2.6%.

For the Eurozone, the continent’s position as a major energy importer means cheaper oil is providing support.

1.1223: EUR/USD Technical Outlook

Price trend: With EUR/USD at 1.1223 on the daily chart, the pair remains near its 20-day exponential moving average (EMA) of 1.1212. The immediate bias is therefore broadly neutral.

Momentum balance: Neither buyers nor sellers appear to have a clear advantage for now. At 48.97, the Relative Strength Index (RSI) is close to its midpoint, signalling balanced momentum.

Downside levels: Monday’s low of 1.1138 provides the first support, followed by the more substantial floor at 1.1104. Losing that latter level would leave 1.1000 exposed.

Upside barrier: The principal obstacle on the upside appears to be 1.1273, the high recorded on 4 November.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Inflation: Key Questions

How is inflation defined?

A rise in the cost of a representative basket of goods and services is measured as inflation. Headline inflation is generally reported as a percentage change month-on-month (MoM) and year-on-year (YoY). Food and fuel, whose prices can shift with geopolitical and seasonal factors, are among the more volatile components excluded from core inflation. Economists concentrate on the core measure. It is also the measure targeted by central banks, whose mandate is to maintain manageable inflation, typically around 2%.

How does the Consumer Price Index (CPI) measure prices?

Changes over time in the prices of a basket of goods and services are tracked by the Consumer Price Index (CPI). The index is generally presented as a month-on-month (MoM) and year-on-year (YoY) percentage change. Central banks target core CPI, which removes volatile food and fuel components. A core CPI reading above 2% usually leads to higher interest rates, while a reading below 2% tends to have the reverse effect. Higher rates support a currency, so rising inflation usually strengthens it. Falling inflation generally has the opposite effect.

How does inflation affect exchange rates?

A country’s currency tends to strengthen when inflation is high and weaken when it is low, even if that relationship appears counter-intuitive. To tackle higher inflation, the central bank will normally increase interest rates. Those higher rates draw in more global capital from investors seeking attractive returns on their money.

How do Gold prices respond to inflation?

Gold historically attracted investors during periods of high inflation because it retained its value. Investors still often seek its safe-haven qualities during extreme market turmoil, but this is not usually the case. High inflation prompts central banks to raise interest rates in response. For Gold, higher rates are a headwind: they raise the opportunity cost of holding the metal rather than an interest-bearing asset or money in a cash deposit account. Lower inflation, by contrast, tends to support Gold because it brings interest rates down, improving the metal’s appeal as an alternative investment.