EUR/USD testing critical $1.10 support after US CPI upside surprise

The US dollar is trying to push through key resistance levels against the euro after news that US consumer prices jumped at a higher pace than expected last month, rising the most in seven months. Higher inflation bolsters the case for the US Federal Reserve to continue standing pat on interest rates, a policy the central bank ennunciated last week after initiating a series of interest rate cuts earlier this year.

The US consumer price index (CPI) climbed by 0.4% in October, a stronger pace than the 0.3% expected generally by the market. However, CPI is only climbing at a 1.8% annual rate, below the Federal Reserve target of 2%, and well below last year's peak annual rate of 3%.

EUR/USD $1.10 level still key

Just after the CPI report hit in early New York trading,EUR/USD pushed just a few pips below the $1.10 level after trading slightly higher than $1.10 in late Tuesday trade.

Technical analysts say that a meaningful breach of the $1.10 level will be critical is the US dollar is to resume its nearly two-year rise against the euro and push to new highs. Conversely, if the euro bulls can succesfully defend the $1.10 level, the case for a reversal of the two-year greenback rally gets stronger.

Since early October, EUR/USD has traded in a broad range of $1.12 to $110, and the longer the pair stays in that channel the more the euro consolidates its strong October gains and the greater the chance of another euro break to the upside.