EUR/USD Falls to Around 1.0790 Amidst Expectations of ECB Rate Cut and Soft German Inflation Data

The EUR/USD pair experiences a continued decline for the second consecutive day, reaching near 1.0790 during the European session on Thursday. The rise in the US Dollar (USD) comes after Federal Reserve (Fed) Chair Jerome Powell dismissed the possibility of a rate cut in the upcoming March meeting, boosting USD and supporting US Treasury yields.

The Euro faces challenges due to lower-than-expected preliminary Consumer Price Index (CPI) data from Germany released on Wednesday. This has led to heightened expectations of a potential interest rate cut by the European Central Bank (ECB) in June. Despite this, ECB Vice President Luis de Guindos suggested earlier in the week that rate cuts would be considered only when there is confidence that inflation aligns with the central bank’s 2% goal.

German CPI for January showed a year-on-year increase of 2.9%, below the expected 3.3% and December’s 3.7%. While monthly consumer inflation met expectations, rising to 0.2% from the previous 0.1%, the Harmonized Index of Consumer Prices YoY increased by 3.1%, lower than the prior figure of 3.8%. The Eurozone’s complete inflation report is scheduled for release at 10:00 GMT.

The US Dollar Index (DXY) continues to strengthen, driven by market expectations of the Federal Reserve’s upcoming decisions, projecting into the May meeting. CME’s FedWatch Tool indicates a probability of over 60% that the Fed will maintain interest rates within the 5.25%-5.50% range in March, with a probability exceeding 60% for a quarter-point rate cut in May.

The US ADP Employment Change reported a 107K jobs increase for January, falling short of the expected 145K and marking a decrease from December’s 158K. Thursday’s focus will be on significant economic indicators like US Initial Jobless Claims, Nonfarm Productivity, and ISM Manufacturing PMI.

In summary, the EUR/USD pair faces downward pressure, testing key support at 1.0790, with potential further downside towards 1.0750. On the upside, immediate resistance lies at 1.0800, with further hurdles at 1.0826, 1.0850, and 1.0867.”

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