**EUR/USD Regains Ground as Dollar Weakens After Mixed US Data**
*By Mitrade News Team*
The EUR/USD currency pair surged on Wednesday, regaining some lost ground as the US dollar retreated following the release of mixed economic data from the United States. The pair, which has been under sustained pressure in recent weeks due to a stronger greenback and uncertainty surrounding the Eurozone’s economic outlook, bounced off recent lows as traders reassessed their expectations for Federal Reserve monetary policy.
This comprehensive analysis examines the factors behind the EUR/USD’s recovery, the impact of recent data releases, shifting market sentiment, and the outlook for the pair in the coming sessions.
### Background: EUR/USD Under Pressure
– In the early weeks of September, the EUR/USD pair repeatedly tested the lower end of its recent trading range, with the euro struggling amid signs of persistent weakness in the Eurozone economy.
– The US dollar, by contrast, found support from resilient US economic activity and hawkish rhetoric from several Federal Reserve policymakers, leading many to expect that the Fed would keep rates higher for longer.
### Key Catalysts Behind the Rebound
The rebound in EUR/USD can be attributed to a confluence of factors:
#### 1. Mixed US Economic Data
– The latest US Producer Price Index (PPI) data came in hotter than expected, fueling temporary gains in the US dollar.
– However, the closely watched US Consumer Price Index (CPI) matched consensus estimates, signalling that inflation pressures may be stabilizing.
– Weekly initial jobless claims rose slightly, indicating some cooling in the labor market.
– Retail sales data gave a mixed signal, showing modest growth but not enough to significantly alter the economic outlook.
– Wage growth also appeared to moderate.
These mixed signals prompted traders to scale back expectations of additional aggressive rate hikes by the Federal Reserve, easing upward pressure on the dollar.
#### 2. Shifting Federal Reserve Rate Hike Expectations
– Prior to the data releases, market participants increasingly priced in the possibility of another 25bps rate hike by the US central bank before year-end.
– Following the CPI, PPI, and jobless claims reports, bets on further tightening diminished, reflected in falling US Treasury yields and a softer dollar.
– Fed funds futures now imply a greater probability that the Fed will hold steady at its next meeting.
#### 3. Technical Factors and Positioning
– The EUR/USD’s recovery was also reinforced by technical factors, with the pair bouncing from oversold conditions as traders covered short positions.
– Several key support levels held firm, triggering a reversal as buyers stepped in.
### Eurozone News: Impacts and Challenges
Despite the euro’s rebound, the fundamental backdrop in the Eurozone remains challenging:
– Recent data out of the bloc highlights persistent weakness, with German industrial production contracting, and business sentiment tumbling to multi-year lows.
– Inflation in the Eurozone continues to decelerate, supporting expectations that the European Central Bank (ECB) has reached, or is close to, the end of its tightening cycle.
– The ECB’s September policy meeting saw officials adopt a cautious tone, emphasizing data-dependency while attempting to balance risks to growth and inflation.
### Market Reactions: Risk Appetite and Flows
– Improved risk sentiment across global equity markets, along with a pullback in crude oil prices, contributed to the euro’s gains as appetite for riskier assets increased.
– The US dollar’s broad-based retreat was reflected in declines against several major currencies, not just the euro.
### Technical Analysis: Key Levels to Watch
A detailed look at EUR/USD’s technical picture:
#### Support
– Recent lows near 1.0670 provided key support; a sustained break below could pave the way toward 1.0600 and the May 2023 lows.
– Below that, next supports to watch include 1.0560 and 1.0500.
#### Resistance
– Initial resistance is seen at the 1.
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