Euro Moves Lower on Weak Inflation Data; RSI Remains Oversold

The dollar has continued to climb with the EURUSD making a fresh one-year low of 1.3116. The drop in Eurozone PPI to -1.1% year over year aided the gains in the greenback, while Monday’s weak manufacturing PMI data out of the Eurozone, also has given the greenback an indirect underpinning.

Separately, The RBA additionally gave the AUDUSD a helping nudge lower following its policy review Tuesday, where it left interest rates at 2.5% for the 13th straight month and repeated that the Australian dollar remains overvalued.

Eurozone July producer price inflation fell to -1.1% year over year from -0.8% year over year in the previous month, with prices down 0.1% month over month. The headline rate was in line with expectations and once again mainly driven by base effects from lower energy prices. Excluding energy the annual rate remained steady at a much more modest -0.1% year over year, which is in fact up from -0.5% year over year in February. So underlying negative inflation pressures are less pronounced than the headline rate suggests which ties in with the uptick in core CPI inflation in August. The Interest rate differential continued to move in favor of the greenback, pushing the currency pair lower.

The EURUSD hit a new 11-month low and is closing in on the September 2013 lows at 1.31. Resistance is seen near the 10-day moving average at 1/3188. Momentum remains negative with the MACD (moving average convergence divergence) index printing in negative territory with a downward sloping trajectory. The RSI continues to print a reading well below the oversold trigger level of 30 at 22, which could foreshadow a correction in the currency pair. The commodity channel index is also printing below -100 which reflects an oversold condition.