Dollar Strength Prevails as Euro Faces Resistance Amidst Core HICP Beat
The Euro encountered challenges against the US Dollar on Thursday, influenced by the Federal Reserve’s impactful commentary, which bolstered the strength of the latter. Despite a slight dip in Eurozone headline inflation, the pair exhibited resilience, possibly attributed to the core rate surpassing initial projections.
Federal Reserve’s Stance and Market Speculations:
As expected, the US central bank maintained borrowing costs, with Chair Jerome Powell’s post-decision remarks hinting at a deferred rate cut, now possibly in May rather than the anticipated March policy call. This cautious approach reflects the Fed’s acknowledgment of the US economy’s resilience to heightened interest rates and a commitment to ensuring inflation control before any policy adjustments. The prolonged stability in US rates at their current 23-year highs naturally supports the Dollar globally.
Federal Reserve’s Stance and Market Speculations:
Eurozone consumer price inflation for January aligned with expectations at 2.8% year-on-year, slightly below December’s rate. However, the ‘core’ measure, excluding food, fuel, alcohol, and tobacco, exceeded expectations at 3.3%, slightly above the forecasted 3.2%. Market data suggests that expectations for an April interest rate cut from the European Central Bank may be overly optimistic, especially with signs of inflation easing in key economies like France and Germany.
Technical Analysis of EUR/USD:
Recent declines over the past two days pushed EUR/USD below its 200-day moving average, signaling a bearish trend. However, it’s crucial to note that this movement is more reflective of a ‘Dollar strength’ narrative than a ‘Euro weakness’ one, potentially mitigating its impact. The Euro has now re-entered a trading range last observed in early December, centered around 1.07961, the third Fibonacci retracement from the October 3 lows to the late December highs. Potential support lies at 1.07254, the range base from December 8, with additional retracement support at 1.07154. A breach below this level could leave the region below 1.05 susceptible once again.
Bullish Prospects and Challenges:
Bulls aiming for a resurgence need to recapture and sustain the current range top at 1.08487 for a convincing upward trajectory.
This nuanced analysis navigates through the trends of EUR/USD, considering the impact of the Federal Reserve’s decisions and insights from Eurozone inflation data.