- US CPI beat expectations but was not enough for a sustainable dollar rally.
- Wall Street and yields reaction to macroeconomic news led the way for currencies.
The EUR/USD pair fell to 1.2275 following the release of US January inflation but ended up regaining the upside and establishing at fresh weekly highs near the 1.2440 level. The greenback lost ground in the Asian session but recovered ground during European trading hours following the lead of yields which moved back and forth ahead of US inflation data. EU data came in-line with market's expectations, with German Harmonized CPI down 1.0% in January from the previous month, and up by 1.4% yearly basis as expected. Germany and the EU released their preliminary Q4 GDP, both posting a 0.6% growth in the three months to December, while the EU Industrial Production was the only positive surprise, up in December 0.4%, leading to an annual reading of 5.2%.
US inflation unexpectedly surged in January, bringing back fears triggered by the US Nonfarm Payroll report of a possible upcoming faster pace of rate hikes in the world's largest economy. The greenback soared, and stocks plummeted as an immediate reaction, as inflation rose 2.1% yearly basis, surpassing expectations of 1.9% and above 2% for a second consecutive month. US inflation rose by 0.5% in the month, well above the expected 0.3%. Core inflation was up 0.3% MoM and 1.8% YoY, also surpassing market's estimates. Dollar strength, however, didn't last long, as Wall Street reversed course on fears receding. Thursday will bring the release of the EU December Trade Balance, while the US will unveil the NY Empire State and Philadelphia manufacturing indexes, January PPI, and weekly unemployment figures.
The EUR/USD pair remains near the mentioned daily high and around the 23.6% retracement of the January rally at 1.2395, the immediate support, after bottoming last week around the 50% retracement of the same rally, somehow anticipating additional gains ahead, although a breakout of the level is not yet clear. In the 4 hours chart, the price has also settled above all of its moving averages, while technical indicators lost upward strength but hold well above their mid-lines and near their recent highs, rather reflecting the easing momentum than signaling an upcoming decline. The pair has now an immediate resistance in the 1.2440 region, and a stronger one at 1.2480 with a break above this last required to confirm additional gains ahead that will probably drive the pair beyond the 1.2536 high set last January.
Support levels: 1.2350 1.2300 1.2260
Resistance levels: 1.2440 1.2480 1.2535
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