EUR USD Slow rise to resistance

EUR/USD has spent the past three weeks in a rather gradual rise from 1.1100 support in late September up towards key resistance around the 1.1450 level.

With the exception of a brief spike up to the 1.1700 level in late August, the 1.1450 price area has served as the primary resistance level for the currency pair almost since the beginning of the year. The last time that this level served as an upside barrier was just in mid-September.

The EUR/USD rise of the past few weeks has primarily been driven by a weakened US dollar that has been pressured due to recently reinforced expectations of a delayed rate hike by the Fed. All-important inflation data coming out of the US this week should help either confirm or change these expectations. The Fed cited low inflation as one of the primary reasons for delaying an initial rate hike last month.

On Wednesday morning there is the Producer Price Index, which is a key indicator of consumer inflation. Also on Wednesday is US retail sales, which is an important economic indicator. Thursday brings the Consumer Price Index, another major inflation release.

While the markets are generally expressing doubt over a 2015 rate hike at the current time, any higher-than-expected inflation readings this week could erode that doubt, thereby potentially supporting the US dollar. Of course, lower-than-expected inflation would most likely have the opposite effect of confirming rate hike doubts and pressuring the US dollar further.

From a technical perspective, the noted 1.1450 resistance area continues to be the level to watch. A retreat from that resistance should prompt a reversion back down towards support targets at 1.1100 and then 1.0800. In the event of a data-driven breakout above the 1.1450 level, any significant EUR/USD rally should be met by strong resistance around the 1.1700 level.