The EUR/USD pair is trading near the 1.0920 level in the early hours of Wednesday.
The pair faced violent fluctuations yesterday, primarily driven by the release of inflation data for February from Germany and the United States.
While the German figures matched expectations, inflation numbers in the United States exceeded forecasts.
From my perspective, the EUR/USD pair continues its attempts to gain any clear momentum, stabilizing around 1.0928 on Wednesday, oscillating in a narrow trading range below the 100-hour Simple Moving Average (SMA).
Traders await further signals regarding the Federal Reserve’s interest rate path before taking positions in a consistent direction in the near term.
After US Consumer Price Index (CPI) inflation for February came in higher than expected, raising concerns about the Fed postponing rate cuts, which in turn strengthens the US dollar. At the same time, European Central Bank officials lean towards the first rate cut in June, weakening the euro and further limiting the upside momentum for the EUR/USD pair.
Therefore, it would be wise to await strong selling pressures before entering long positions for further declines.
A member of the ECB’s Governing Council, François Villeroy de Galhau, stated there is consensus within the ECB to begin cutting interest rates in the spring, potentially ahead of the US. Highlighting the ECB’s ability to adjust interest rates independently, this will negatively impact the pair in the medium term.
Additionally, the Governor of the Bank of France, Robert Holzmann, suggested it is likely that the ECB will cut interest rates in June compared to April. However, confirmation of these expectations is needed amidst the prevailing uncertainty. He noted that the ECB will soon be forced to lower interest rates despite significant increases in wage inflation and service prices.
I believe the dollar index remains strong, attempting to sustain recent gains, supported by improving US Treasury bond yields. The US dollar also received strong support from the Consumer Price Index report, which came in stronger than expected, reducing expectations for near-term interest rate cuts and bolstering the dollar’s strength. From my perspective, this price action poses a significant challenge for the EUR/USD pair.
I now expect traders and markets as a whole to focus on the release of the US Producer Price Index (PPI) and Retail Sales data scheduled for tomorrow, Thursday. Monitoring price behavior and market pricing of the new data could lead the pair sharply higher or lower upon release and in the near to medium term thereafter.
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