EUR/USD bulls turn cautious ahead of the crucial inflation data from Germany and US

  • EUR/USD attracts some follow-through buying on Thursday amid modest USD weakness.
  • Reduced bets for an aggressive ECB policy easing underpin the Euro and also lend support.
  • Traders now look to more inflation figures from Germany and the US for a fresh impetus.

The EUR/USD pair builds on the previous day's goodish rebound from sub-1.0800 levels, or a one-week low and gains some follow-through traction on Thursday. The momentum picks up pace during the first half of the European session and lifts spot prices beyond mid-1.0800s, though lacks follow-through. A slightly stronger inflation data from Spain and France underpinned the shared currency, which, along with a modest US Dollar (USD) weakness, turn out to be key factors acting as a tailwind for the currency pair. 

Apart from this, reduced bets for rapid interest rate cuts by the European Central Bank (ECB) lend additional support to the EUR/USD pair. Traders, however, seem reluctant to place aggressive bets ahead of more inflation figures from Germany and the United States (US), which could influence the European Central Bank (ECB) and the Federal Reserve's (Fed) future policy decisions. This, in turn, will help in determining the next leg of a directional move for the EUR/USD pair ahead of the ECB meeting next Thursday. 

Daily digest market movers: EUR/USD fades warmer French and Spanish CPI-inspired intraday uptick

  • The National Institute of Statistics and Economic Studies reported that the Consumer Price Index (CPI) in France rose 2.9% year-on-year in February as compared to the 3.4% previous and 3% expected.
  • Meanwhile, the headline CPI in Spain decelerated from 3.4% in January to the 2.8% YoY rate during the reported month, though was still slightly above consensus estimates pointing to a reading of 2.7%. 
  • Retail Sales in Germany fell by 0.4% MoM in January, missing expectations for a 0.5% increase, and adding to concerns about the darkening outlook for the Eurozone's biggest economy.
  • Investors, however, seem relcutant ahead of the crucial inflation data from the Eurozone and the US on Thursday, which might keep a lid on any further appreciating move for the EUR/USD pair.
  • ECB Governing Council member Peter Kazimir said on Wednesday that he would prefer the central bank to start cutting rates in June, followed by a smooth and steady cycle of policy easing.
  • ECB Vice President Luis de Guindos said that the recent inflation data has been very positive, though the central bank needs to be sure that prices will move towards the 2% target before cutting rates.
  • Money markets are now pricing in around 90 basis points (bps) of rate cuts by the ECB this year, down from almost 150 bps a month ago, which is seen as acting as a tailwind for the Euro.
  • The second estimate of the US GDP print showed on Wednesday that the world's largest economy grew by a 3.2% annualized pace during the fourth quarter vs the advance reading of a 3.3% rise.
  • The data suggested that the US economy remains in good shape, which, along with comments by several Federal Reserve officials, reaffirmed the higher-for-longer interest rates narrative.
  • New York Fed President John Williams said that the central bank will begin cutting rates this year depending on how the data comes in, albeit there is still a way to go before hitting the 2% inflation target.
  • Atlanta Fed President Raphael Bostic stressed that the US central bank has not declared victory over inflation yet and said that he is comfortable advising patience when it comes to loosening policy.
  • Furthermore, Boston Fed Bank President Susan Collins noted that it will become appropriate to begin easing policy later this year but the path to returning inflation to its 2% target will likely be bumpy.
  • The US Dollar, however, struggles to attract buyers as traders look to the US Personal Consumption Expenditures (PCE) Price Index for cues about the Fed's rate-cut path and some meaningful impetus.
  • Thursday's economic docket also features the flash CPI estimates from Germany, France and Spain, followed by US macro data – Weekly Initial Jobless Claims,  the Chicago PMI and Pending Home Sales.
  • The focus will then shift to the Eurozone consumer inflation figures on Friday, which might influence expectations about the ECB's future policy decision and infuse volatility around the currency pair.

Technical analysis: EUR/USD struggles to find acceptance above mid-1.0800s, trims a part of intraday gains

From a technical perspective, oscillators on the daily chart have just started gaining positive traction and support prospects for further gains. Some follow-through buying beyond the 1.0850 area will reaffirm the constructive outlook and lift the EUR/USD pair to the 1.0900 round figure. A sustained strength beyond the latter will be seen as a fresh trigger for bullish traders and pave the way for a further near-term appreciating move, towards reclaiming the 1.1000 psychological mark for the first time since January 11.

On the flip side, any meaningful downfall might continue to find some support near the 1.0800 mark. That said, acceptance below the said handle could make the EUR/USD pair vulnerable to accelerate the fall back towards retesting sub-1.0700 levels, or a three-month low touched on February 14. The latter should act as a key pivotal point, which if broken decisively will be seen as a fresh trigger for bearish traders.

Euro price today

The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the New Zealand Dollar.

USD   -0.06% -0.01% 0.09% -0.03% -0.38% 0.18% 0.12%
EUR 0.04%   0.04% 0.14% 0.02% -0.33% 0.24% 0.17%
GBP 0.01% -0.04%   0.11% -0.01% -0.36% 0.20% 0.14%
CAD -0.09% -0.13% -0.11%   -0.12% -0.47% 0.10% 0.03%
AUD 0.03% -0.03% 0.01% 0.12%   -0.36% 0.22% 0.13%
JPY 0.39% 0.33% 0.36% 0.47% 0.36%   0.59% 0.51%
NZD -0.19% -0.24% -0.19% -0.09% -0.21% -0.58%   -0.04%
CHF -0.13% -0.16% -0.15% -0.03% -0.16% -0.50% 0.07%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

Economic Indicator

United States Core Personal Consumption Expenditures - Price Index (MoM)

The Core Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The PCE Price Index is also the Federal Reserve’s (Fed) preferred gauge of inflation. The MoM figure compares the prices of goods in the reference month to the previous month.The core reading excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures. Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.

Read more.

Next release: 02/29/2024 13:30:00 GMT

Frequency: Monthly

Source: US Bureau of Economic Analysis

Why it matters to traders

After publishing the GDP report, the US Bureau of Economic Analysis releases the Personal Consumption Expenditures (PCE) Price Index data alongside the monthly changes in Personal Spending and Personal Income. FOMC policymakers use the annual Core PCE Price Index, which excludes volatile food and energy prices, as their primary gauge of inflation. A stronger-than-expected reading could help the USD outperform its rivals as it would hint at a possible hawkish shift in the Fed’s forward guidance and vice versa.

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