EUR/USD Stabilizes as US Inflation Data Cools

By the Analytical Department

After a tense trading session last night, the EUR/USD currency pair is currently stabilizing and is trading around the level of 1.0285 this Thursday morning.

Key Factors Impacting EUR/USD

The recent US inflation data revealed modest growth that aligned closely with market expectations. The Consumer Price Index (CPI) saw an increase of 0.4% month-over-month in December, leading to an annualized growth rate of 2.9% year-over-year. Notably, the Core CPI, which excludes the prices of volatile items, showed a reduction in pace, rising only by 0.2% month-over-month (3.2% year-over-year), which was less than the anticipated 0.3% month-over-month growth (3.3% year-over-year).

Consequently, US Treasury yields have fallen, which usually negatively influences the USD. However, the reaction in the currency markets has been relatively mild.

The release of these inflation figures has caused market participants to slightly adjust their expectations regarding interest rate cuts by the Federal Reserve in 2025. Current predictions suggest average cuts of about 37 basis points throughout the year.

In January, the USD has shown stronger performance compared to December, and if the current trend persists, this week could end up being the fourth consecutive week of USD gains.

On the European front, data has not provided much support for the euro. The Eurozone's industrial production increased by 0.2% month-over-month in November, rebounding from stagnation in October. However, year-over-year comparisons indicate a significant downturn, with production decreasing by 1.9%.

Investors are now looking forward to crucial upcoming US economic reports, including December's retail sales and weekly jobless claims, as these could further impact the EUR/USD pair.

Technical Analysis of EUR/USD

From a technical standpoint, on the H4 chart, the EUR/USD pair recently completed a corrective phase up to 1.0350 before initiating a new downward trend that brought it down to 1.0258. The outlook suggests the potential for further downward movement, possibly targeting 1.0160. Should the pair reach this level, a correction towards 1.0250 might follow, with another decline potentially extending to 1.0050. This projection is supported by the MACD indicator, which indicates bearish trends as its signal line is below zero and moving downwards.

On the H1 chart, a downward movement has been observed, reaching a low of 1.0258. A corrective rebound is anticipated, targeting the 1.0300 level. If this level is attained, the downward pressure may resume, aiming for 1.0210 and possibly extending to 1.0160. This outlook is reinforced by the Stochastic oscillator, which shows its signal line below the 50 level and moving towards 20, indicating continued downward momentum.

Conclusion

The EUR/USD pair remains under pressure due to the US inflation figures that have supported the dollar's resilience. While technical indicators suggest further downside risks, the pair's trajectory will await signals from upcoming US retail sales and jobless claims reports, as well as the overall strength of the USD. On the euro’s side, weak industrial data continues to reflect the difficulties facing the eurozone, contributing to a bearish outlook for the currency.

Disclaimer: Any forecasts reflected in this analysis represent the author's personal opinion and should not be interpreted as trading advice.

The author bears no responsibility for any trading outcomes that may arise from the recommendations outlined here.

EURUSD, inflation, economy