Ella 
EUR/USD in Asia attracted some buying but lacked strong follow-through.
The Fed’s continued dovish outlook put dollar bulls on the defensive, boosting EUR/USD.
Traders appeared less inclined to place aggressive bets ahead of U.S. consumer inflation data.
EUR/USD was higher during the Asian session on Thursday and is currently trading around 1.0620-1.0625, just below the two-and-a-half-week high hit the previous day. However, there is a lack of bullish confidence in this move as traders appear uncertain about the Federal Reserve’s (Fed) path of future interest rate hikes.
Data released on Wednesday showed that the U.S. final demand producer price index increased at an annual rate of 2.2% in September, compared with a 2% increase in the previous month. In addition, the core producer price index excluding food, energy and trade services was at an annual rate of 2.8%, higher than the expected 2.3%. Meanwhile, producer prices rose as a result of a surge in energy prices, which have fallen sharply since early October, also raising hopes for lower underlying inflation. Coupled with the recent dovish comments from several Federal Reserve officials, it once again confirmed expectations that the U.S. central bank’s interest rate hike cycle is nearing the end.
A further decline in U.S. Treasury yields reinforced that outlook, keeping the dollar subdued near two-week lows and acting as a tailwind for the EUR/USD pair. However, the market still believes that the Federal Reserve will raise interest rates at least once before the end of this year. In addition, the ongoing conflict between Israel and the Palestinian Islamist group Hamas also provided some support for safe-haven currencies. This, coupled with market speculation that the European Central Bank (ECB) may not raise interest rates further for the time being, is believed to curb further gains in EUR/USD. Traders also appear to be less inclined to place aggressive bets ahead of the release of U.S. consumer inflation data.
Crucial U.S. inflation data will be released late in the U.S. session on Thursday and will play a key role in influencing the Fed’s next policy moves. This in turn will drive dollar demand, giving EUR/USD new momentum. Amid key data risks, it would be prudent to wait for strong follow-through buying before initiating a trade on EUR/USD’s recent rebound from last year’s lows (around 1.0450-1.0445 hit last week).
