The EUR/USD pair experienced a moderate retreat at the start of the week amid the U.S. dollar’s dominance and rising U.S. Treasury yields, resulting in a lackluster trading session as traders awaited new catalysts. Tuesday’s focus turns to the anticipated release of U.S. inflation data, with consensus estimates predicting a downshift in annual headline CPI to 2.9% in January from 3.4% in the previous month. The core gauge is also expected to ease to 3.7% from 3.9% previously.
The upcoming U.S. inflation report has the potential to trigger increased volatility in the FX markets. If progress in disinflation stalls or proceeds less favorably than anticipated, the Fed may delay the start of its easing cycle, propelling U.S. yields higher and creating a challenging environment for the euro. Conversely, if CPI figures surprise to the downside, it could reignite speculation of a rate cut at the March FOMC meeting, which would be bullish for EUR/USD.
EUR/USD’s technical analysis reveals that the pair failed to breach resistance at 1.0785 on Monday, leading to a bearish reversal. If this bearish rejection is confirmed, it could result in a move towards 1.0720, with the potential for a rebound. However, a breakdown below this level could shift focus to the 1.0650 level. Conversely, if sentiment favors buyers and the pair breaks above 1.0785 decisively, a rally towards the 200-day simple moving average and trendline resistance at 1.0835 could be observed, with attention then turning to the 1.0900 handle.