EUR/USD pauses three-day downtrend near 1.1800 as USD edges higher

• EUR/USD consolidates losses around monthly low, eases of late.
• ECB policymakers reject reflation fears, US inflation for August tames tapering tantrum.
• Market sentiment dwindles amid mixed clues, confusion over Fed’s next moves.
• Eurozone IP, ECB members’ comments and second-tier US data will provide intermediate moves, risk catalysts are the key.

EUR/USD struggles to keep the post-US inflation corrective pullback around 1.1800 heading into the European session on Wednesday. Even so, the major currency pair pauses a three-day downtrend that refreshed the monthly bottom on Monday.

Markets remain divided even after the US Consumer Price Index (CPI) for August eased below forecasts. The reason could be linked to the higher numbers, despite the recent weakness, as well as a slew of data left for publishing. Also helping the EUR/USD could be mildly positive comments from the European Central Bank (ECB) policymakers, published on Tuesday.

The US CPI dropped the most since January on monthly basis to 0.3% versus 0.4% expected and 0.5% prior. The CPI ex Food & Energy also dropped below 0.3% expected and previous readings to 0.1% during August, marking the biggest fall in six months. Fed’s readiness to accept a bit higher inflation figures, terming it ‘transitory’, seems to be at the test with almost double YoY figures than the US central bank’s previous target range of near 2.0%.

On the other hand, European Central Bank (ECB) Governing Council member Francois Villeroy de Galhau and Executive Board Member Isabel Schnabel both rejected fears of high inflation. The same enables the policymakers to rethink over further tapering and rate actions, which in turn helps the bloc currency (Euro).

Other than the re-think over the Fed tapering and ECB chatters, covid woes and geopolitical tensions also weigh on the market sentiment, underpinning the safe-haven demand of the US Treasury bonds, which in turn weigh on its yields. The same should challenge the EUR/USD buyers. It’s worth noting that the mildly upbeat stock futures from Europe and the US probe the bears.

Looking forward, Eurozone Industrial Production (IP) for July, expected to reverse -0.3% previous with +0.6%, will join comments from ECB’s Schnabel and Chief Economist Philip Lane to entertain EUR/USD traders. Following that, risk catalysts and the US Industrial Production for August, expected to ease from 0.9% to 0.5%, could offer intermediate moves.

Technical analysis

A convergence of the 50 and 20-day simple moving averages (DMA) around 1.1800 offers strong downside support to the EUR/USD bears targeting the late July lows near 1.1750. Meanwhile, the corrective pullback may aim for 1.1850 but remains doubtful until staying below the double tops around 1.1910.