EUR/USD Under Pressure: The Consequences of Soft German Inflation

Analyze EUR/USD amid German inflation. Stay informed, and make informed forex decisions. Expert market insights.

EUR/USD faces continued downward pressure due to softer German inflation figures, which serve as a crucial indicator for the broader inflationary landscape within the Eurozone. The disparity in hawkish tones between certain US Federal Reserve officials and their European Central Bank counterparts has contributed to the euro retracing recent gains after the non-farm payroll (NFP) data release. Federal Reserve officials like Logan and Bowman emphasized the resilience of the US economy. They hinted at the possibility of further interest rate hikes, adopting a ‘wait and see’ approach pending more data after the NFP miss.

EUR/USD Under Pressure – The Consequences of Soft German Inflation

The decline in German inflation on month-on-month (MoM) and year-on-year (YoY) metrics has intensified concerns, mainly because Germany is the largest economy in the Eurozone. Later today, ECB speakers may introduce dovish elements to their messaging, potentially pressuring the euro further. Furthermore, the euro faces added challenges as analysts expect a decrease in Eurozone retail sales.

Market attention will shift to the Federal Reserve, with Fed Chair Jerome Powell’s speech under scrutiny. Investors will analyze his words for any hints or shifts in the prior narrative. Despite the fickle nature of market expectations, implied Fed funds futures have been re-priced in a dovish manner, returning to pre-NFP levels. The prospect of the ECB cutting rates by around 30 basis points by the end of 2024 might continue to support the US dollar against the euro, especially given the ongoing geopolitical tensions in the Middle East, which could enhance the USD’s haven appeal over the EUR.

In the technical analysis, the EUR/USD indicates that the pair trades below the psychological level of 1.0700. The pullback within the more significant downtrend forms a bear flag pattern, suggesting a potential downtrend continuation. Key resistance levels to watch include 1.0800 (200-day moving average) and the upper boundary of the bear flag. On the downside, support levels lie at 1.0635 (50-day moving average), 1.0600, and 1.0500, with the latter being the flag support.

Retail sentiment data from IG shows mixed signals, with 56% of traders holding long positions on EUR/USD at the time of this analysis.

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