EURUSD is currently trading around the 1.138 area after two consecutive sessions of decline, as the euro came under pressure from a series of weaker-than-expected inflation data from the Eurozone.
Although the short-term trend still leans to the downside, price action has become more cautious, as the market previously continued to see intermittent technical rebounds, suggesting that the trend has not completely shifted in one direction.
The main pressure on the EUR comes from inflation in the Eurozone cooling faster than expected. Germany’s preliminary CPI m/m fell by 0.3%, below the forecast of 0.0%. Meanwhile, Eurozone CPI declined from 3.2% to 2.8%, lower than the expected 3.0%, while Core CPI also eased from 2.6% to 2.4%.
These figures indicate that price pressures are softening more clearly, thereby reducing the incentive for the ECB to maintain an overly hawkish stance in the period ahead. Therefore, from the European side alone, the current picture remains unfavourable for the euro.
However, the decline in EURUSD has not extended significantly, as the USD side is also not overwhelmingly strong. U.S. consumer confidence weakened, with CB Consumer Confidence coming in at 91.2, below the forecast of 94.4. In addition, ADP Non-Farm Employment increased by only 98K, lower than the forecast of 118K and below the previous reading of 122K, indicating that the private-sector labour market is beginning to show signs of slowing.
Nevertheless, labour demand in the U.S. has not weakened clearly, as JOLTS job openings remained above expectations, preventing the market from fully ruling out the possibility that the Fed will continue to maintain a cautious stance.
In my view, EURUSD may continue to trade cautiously in the short term. The euro remains under pressure due to weaker-than-expected Eurozone inflation data, but the USD is still not strong enough to trigger a more decisive decline in the pair.
The key focus ahead will be the U.S. Non-Farm Payrolls report. If labour market data comes in stronger than expected, the USD could regain support and keep EURUSD under downside pressure. Conversely, if Non-Farm Payrolls show that the U.S. labour market is cooling more clearly, EURUSD may see a recovery, although upside potential could still be limited by the less positive outlook from the Eurozone.
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