Euro: Softer CPI may unlock 1.1600 against US Dollar – ING

ING’s Francesco Pesole notes that with key Eurozone data behind and European Central Bank (ECB) communication subdued, EUR/USD is now driven mainly by the United States (US) side. A softer US Consumer Price Index (CPI) could trigger a break above 1.1600, with the 200-day moving average at 1.1630 as the next resistance, while short-term rate differentials remain the dominant driver.

US side dominates Euro dynamics

"The euro is entering a particularly quiet stretch for domestic drivers. The key July data releases are behind us, while August is typically a quiet month for European Central Bank communication. In any case, the ECB has already given markets a quasi-commitment to a September hike."

"That leaves EUR/USD firmly dominated by the USD side of the equation. A softer US CPI print would increase the chances of a break above 1.1600 already this week. The next important resistance beyond that is the 200-day moving average at 1.1630."

"Our short-term fair value models are offering little direction at present, with EUR/USD broadly tracking moves in rates, equities and commodities. Short-term rate differentials have continued to grow as the main driver for EUR/USD, meaning sensitivity to the Fed story should remain very elevated."