US inflation data drives market sentiment, crash in play

Euro forecast

  • EUR/USD It fell on Monday, turning lower after failing to clear resistance at 1.0785
  • The market's attention will be on January in the US Economic inflation Report on Tuesday
  • This article explores euro/American dollarKey technical levels to watch in the coming days

Most read: Gold falls as stocks rise; EUR/USD, GBP/USD are waiting for US inflation

The EUR/USD pair declined moderately at the start of the new week, influenced by the broad-based strength of the US dollar, as evidenced by the DXY index's 0.15% increase, which occurred in the context of rising US Treasury yields.

Price action on Monday was unimpressive, as many traders remained on the sidelines, waiting for new catalysts that could lead to more meaningful moves. However, Tuesday promises a turnaround, with potential for increased volatility in FX markets, driven by the expected release of US inflation data.

In terms of consensus estimates, the annual headline CPI is expected to fall to 2.9% in January from 3.4% the previous month. The core measure is also moderating, but in a more gradual manner, falling to 3.7% from 3.9% previously.

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If progress in combating inflation stalls or goes less favorably than expected, the Fed may be tempted to delay the start of its easing cycle, pushing US yields higher. This could reinforce the US dollar rebound seen in 2024, creating a hostile environment for the euro.

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Conversely, if the CPI numbers surprise to the downside, an adverse market response is likely to unfold, especially if the loss is large. This outcome could fuel interest rate cut speculation at the FOMC meeting in March, weighing on yields and the US dollar. This scenario would be bullish for EUR/USD.

Next US inflation report

source: DailyFX Economic Calendar

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Technical analysis of the EUR/USD pair

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

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

EUR/USD technical analysis chart

EUR/USD chart created using TradingView

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