EUR/USD slipped on Tuesday as the dollar strengthened ahead of US October inflation data. Political and fiscal instability in France weighs on the euro, while lower oil prices may partly limit the pair's decline.
EUR/USD is slightly lower on Tuesday, trading around 1.1220 after a moderate rise a day earlier. The dollar is strengthening despite growing expectations of a possible US-Iran deal, and the market's focus is on the upcoming US inflation release.
US CPI could reinforce Fed rate hike bets
The main event today is the US Consumer Price Index (CPI) for October. Headline inflation is expected to accelerate to 3.9% year-on-year from 3.7%, with core inflation rising to 2.8% from 2.6%.
Following the strong NFP report, markets have raised expectations of a Fed rate hike in December. The likelihood is estimated at around 82% versus 76% late last week, and comments from Fed officials remain fairly hawkish.
France and Lagarde weigh on the euro
The euro faces its own pressures. Political and fiscal instability in France continues to weigh on investor sentiment, while reports of Christine Lagarde's possible early departure add to uncertainty about future ECB policy.
However, oil prices have fallen to their lowest levels since August amid optimism over diplomatic efforts in the Middle East. Cheaper oil reduces inflation risks and may eventually provide moderate support for the euro.
Key levels to watch
On the H4 chart, the pair shows a sideways structure with a downward bias. After declining to 1.1131, the market recovered and approached resistance at 1.1223, with 1.1245 as the nearest target for buyers.
The price reaction at 1.1187 will determine the next move. Consolidation below support would increase the likelihood of a decline towards 1.1160, followed by 1.1131, while sustained consolidation above 1.1245 would open the way towards 1.1272.
Source: ActionForex
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