Eurozone PPI adds to ECB woes

EUR/USD appears to be fairly well anchored to the 1.35 level ahead of the ECB rate meeting and statement tomorrow, and continues to trade in a narrow range capped by 1.3520 and supported by 1.3440.

Close correlation with the GBP/USD trade and the rise in that pair has helped to keep the EUR/USD support level in check. The UK services PMI has seen sterling surge in early trade.

As producer prices in Europe had their largest setback since January 2010, rising by a mere 0.1% in September compared to the previous month and failing to meet expectations of a 0.2% rise, this once again indicates that deflation, not inflation, is the main headache for the European Central Bank. Questions still abound on whether we will see any action in terms of rate cuts on Thursday.

EU economic forecasts have also been something of a blight on the future of Europe. Gross domestic product in the 17-nation currency bloc will rise by 1.1% in 2014, which is less than the 1.2% forecast in May, the Brussels-based commission said today.

Later this afternoon we will see the release of US ISM non-manufacturing PMI. Expectations are for a small decline from last month to 54.2.

While above the 1.35 level, there may be appetite to drive this pair back up towards 1.36. Any move and daily close below 1.3460 puts downside bias on the euro.

Spot FX EUR/USD chart

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