EUR/USD Forecast: US Inflation Data to Drive Market Sentiment, Breakdown in Play

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EURO OUTLOOK

  • EUR/USD slides on Monday, turning lower after failing to clear resistance at 1.0785
  • Market attention will be on the January U.S. inflation report on Tuesday
  • This article explores EUR/USD’s key technical levels to watch in the coming days

Most Read: Gold Dips as Stocks Fly; EUR/USD, GBP/USD Await US Inflation

EUR/USD retreated moderately at the start of the new week, dragged down by the broad-based strength of the U.S. dollar, as demonstrated by a 0.15% increase in the DXY index, which took place in a context of rising U.S. Treasury yields.

Monday’s price action was unimpressive, as many traders remained on the sidelines, waiting for new catalysts that could spark more meaningful moves. Tuesday, however, promises a shift, with the potential for increased volatility in the FX markets, driven by the anticipated release of U.S. inflation data.

In terms of consensus estimates, annual headline CPI is forecast to have downshifted to 2.9% in January from 3.4% in the previous month. The core gauge is also seen moderating, but in a more gradual fashion, easing to 3.7% from 3.9% previously.

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If progress in disinflation stalls or proceeds less favorably than anticipated, the Fed may be inclined to delay the start of its easing cycle, propelling U.S. yields higher. This could reinforce the U.S. dollar’s rebound witnessed in 2024, creating a hostile environment for the euro.

Conversely, if CPI figures surprise to the downside, the opposite market response is likely to unfold, especially if the miss is substantial. This outcome could reignite speculation of a rate cut at the March FOMC meeting, weighing on yields and the U.S. dollar. This scenario would be bullish for EUR/USD.

UPCOMING US INFLATION REPORT

Source: DailyFX Economic Calendar

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of clients are net long.




of clients are net short.

Change in Longs Shorts OI
Daily 17% 1% 10%
Weekly -18% 37% -1%

EUR/USD TECHNICAL ANALYSIS

EUR/USD pushed towards resistance at 1.0785 on Monday, but then reversed course. If this bearish rejection is confirmed in the coming days, sellers could spark a move towards 1.0720. The pair may find stability in this area before rebounding, but a breakdown would put the 1.0650 level squarely in focus.

On the other hand, if sentiment flips back in favor of buyers and EUR/USD breaks above 1.0785 decisively, we could see a rally towards the 200-day simple moving average and trendline resistance at 1.0835 in the near term. Looking higher, attention will turn to the 1.0900 handle.

EUR/USD TECHNICAL ANALYSIS CHART

A screen shot of a graph  Description automatically generated

EUR/USD Chart Created Using TradingView





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