EUR/USD analysis: fears of lagging inflation hurt the greenback

Valeria Bednarik FXStreet

EUR/USD Current price: 1.2348

Fed Minutes showed that policymakers are optimistic about growth, but concerned about inflation.
Dollar's decline moderate considering previous sessions' gains.

The greenback started the day with a strong footing, advancing against the common currency and piercing the 1.2300 level for the first time in a week. There was no particular catalyst for the latest dollar's advance as yields hovered for most of the day around their Tuesday's closing levels, albeit sour macroeconomic figures in different economies helped it. In the data front, figures coming from the EU showed that economic growth remained strong this February, according to preliminary Markit PMIs, although the numbers were slightly below market's forecast, retreating from 12-year highs. Nevertheless, and for the EU, the manufacturing index printed a solid 58.5 down from the previous 59.6, while the services sector index came in at 56.7, down from 58.0. The Composite index ended at 57.5 from 58.8. In the US, however, the indexes beat expectations, with the manufacturing sector growing at its fastest pace in over three years. Existing Home Sales, however, unexpectedly plunged in January by 3.2% against a 0.9% advance expected. It was the second-month in-a-row sales post a large decline.

The FOMC's Meeting Minutes released late US session, however, put the greenback under pressure, with the pair entering positive territory by the end of the day, as officials saw an appreciable risk of inflation lag to target, despite being optimistic on economic growth.

The EUR/USD pair retains its bearish tone at the end of the day, holding around the 61.8% retracement of this February rally, at 1.2340. Despite there's no good reason for the greenback to keep on rallying, the pair is at risk of extending its decline at the current levels, with scope to retest the monthly low of 1.2204. In the 4 hour chart, technical indicators have recovered from oversold readings, but the pair remains below its 20 and 100 SMAs, with the shortest crossing below the largest, both around 1.2380, also a Fibonacci resistance. The pair will need to recover beyond the next resistance at 1.2425, to regain its bullish stance, while below 1.2300, chances are of further slumps for this Thursday.

Support levels: 1.2300 1.2260 1.2225

Resistance levels: 1.2380 1.2425 1.2460

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Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

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