Peter Smith
EUR/USD continues its downward trend as investors await key inflation data from Germany and the US. The pair remains bearish, with technical indicators signaling further downside potential.
EUR/USD Extends Losses as Market Awaits Inflation Reports
EUR/USD (Euro/US Dollar) has been on a losing streak, closing in negative territory for three consecutive days and continuing to edge lower on Friday. The pair's short-term outlook remains bearish, with traders closely monitoring inflation data from Germany and the US for potential market-moving catalysts.
ECB Policy Stance Fails to Lift EUR/USD
The European Central Bank (ECB) concluded its January meeting with a widely expected 25 basis points (bps) rate cut. However, the lack of fresh policy signals from ECB President Christine Lagarde left investors uncertain about the future rate path. Lagarde reiterated that upcoming decisions would be driven by data and economic analysis, offering little to support the euro.
Meanwhile, the US economy showed mixed signals. The Bureau of Economic Analysis (BEA) reported a GDP growth rate of 2.3% for the fourth quarter, falling short of the expected 2.6% and the previous quarter’s 3.1% expansion. However, a decline in Initial Jobless Claims to 207,000 provided some optimism for the labor market, boosting the US Dollar (USD). As a result, EUR/USD reversed earlier gains and moved lower during the American session.
Technical Outlook: EUR/USD Remains Bearish
From a technical perspective, EUR/USD remains under pressure. The Relative Strength Index (RSI) on the four-hour chart remains below 50, indicating weak momentum. Additionally, the pair has closed below the 50-day Simple Moving Average (SMA) for the third consecutive session, reinforcing the bearish bias.
A break below the key support zone at 1.0380-1.0390 (200-period SMA and Fibonacci 50% retracement) could accelerate losses toward 1.0350-1.0360 (Fibonacci 38.2% retracement, 100-period SMA) and further down to 1.0300 (static support and psychological level).
On the upside, resistance levels stand at 1.0440 (Fibonacci 61.8% retracement), followed by 1.0500-1.0510 (round level and Fibonacci 78.6% retracement), and 1.0540 (static level).
Key Inflation Data Could Drive EUR/USD Volatility
Later in the day, market participants will closely watch Germany’s Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) Price Index from the US.
- Germany’s annual CPI inflation is expected to remain at 2.6%. A surprise increase could strengthen the USD if traders perceive it as a sign of persistent inflationary pressure.
- In the US, the core PCE Price Index is projected to rise 0.2% in December. However, a stronger-than-expected 0.3% reading could further boost the USD, pushing EUR/USD lower heading into the weekend.
Conclusion
With the USD benefiting from a cautious market mood and technical indicators pointing downward, EUR/USD remains vulnerable to further losses. Traders should remain cautious ahead of key inflation data, which could set the direction for the pair in the near term.
Peter Smith
