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Market Focus: EUR/USD Struggle Against Dollar Strength

EUR/USD Dollar

EUR/USD is down after the Fed, despite the core HICP beat, signaling potential challenges for the Euro against the strong Dollar.

The Euro (EUR) continued to struggle against the United States Dollar (USD) on Thursday, influenced by the aftermath of the Federal Reserve’s recent statements, which bolstered the strength of the greenback. Despite a marginal dip in Eurozone headline inflation, the pair remained relatively unaffected, possibly due to the core rate exceeding expectations.

The Federal Reserve adhered to widely anticipated expectations by maintaining existing borrowing costs. However, despite the belief that the next move would be a rate cut, Chair Jerome Powell’s post-decision remarks indicated a postponement, with May being perceived as a more plausible timeline. The robustness of the US economy to higher interest rates has surprised observers, and the Fed appears committed to ensuring that inflation is under control before contemplating any rate adjustments. This commitment has contributed to a widespread perception of a prolonged period of stable US rates, supporting the Dollar across global markets.

Market Focus: EUR/USD Struggle Against Dollar Strength

Eurozone consumer price inflation data for January revealed a year-on-year rate of 2.8%, in line with expectations and slightly below December’s figure. Notably, the core measure, excluding the impact of food, fuel, alcohol, and tobacco, exceeded expectations at 3.3%, slightly above the projected 3.2%.

Despite some optimism in the market regarding a potential April interest rate cut by the European Central Bank, the overall data suggests that such expectations may be premature, especially with signs of easing inflation in major Eurozone economies like France and Germany.

EUR/USD Technical Analysis

The recent decline in EUR/USD has seen the pair slip below its 200-day moving average, a significant bearish signal. However, it’s crucial to note that this movement is more a result of “Dollar strength” than “Euro weakness,” potentially mitigating its impact. The Euro has reentered a trading range last observed in early December, with support levels at 1.07254 and 1.07154 and further vulnerability below 1.05 if these levels are breached.

Bulls aiming for a resurgence must reclaim and sustain the current range top at 1.08487 to mount a convincing fightback.

IG’s sentiment indicator reveals a bearish stance among traders at present levels, albeit not overwhelmingly so. Before establishing positions, traders may observe whether this weakness persists into the week’s close.

EUR/USD: Bearish Trends Persist

  • Change in longs: Daily [9% increase], Weekly [21% increase]
  • Change in shorts: Daily [6% decrease], Weekly [20% decrease]
  • Open interest: Daily [2% increase], Weekly [0% change]

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