EUR/USD traders are closely monitoring the upcoming release of US CPI data for February, as the outcome could influence expectations regarding Fed interest rate cuts, impacting the US dollar’s performance.

Ahead of the CPI release, EUR/USD is trading slightly higher, with attention focused on the potential timing of rate adjustments by the Federal Reserve. A lower-than-expected inflation report may prompt the Fed to act sooner, leading to negative sentiment for the US dollar.

Economists anticipate moderation in the US Consumer Price Index, excluding food and energy, with expectations of a 3.7% YoY increase in February. The broader headline CPI figure is forecast to show a 3.1% YoY rise.

Probability calculations from the CME FedWatch Tool suggest declining expectations for rate cuts in May, with a higher likelihood of cuts by June.

BNY Mellon strategist Geoffrey Yu believes the euro is overvalued compared to the US dollar due to weaker Eurozone growth and potential rate cuts by the ECB before the Fed. He predicts a euro decline against the dollar in 2024, citing economic factors.

EUR/USD technical analysis indicates a short-term uptrend, although a correction phase may unfold, possibly finding support around 1.0898 or 1.0888. A bullish reversal pattern or a break above 1.0955 would suggest the uptrend’s continuation, with tough resistance expected at 1.1000.

A decisive break above 1.1000 could lead to further gains towards the next key resistance level at 1.1139. However, the battle between bulls and bears may intensify around the 1.1000 level, potentially causing increased volatility in the market.

Euro FAQs

What is the euro?

The Euro is the currency used in the Eurozone, which consists of 20 European Union nations. It is the world’s second most heavily traded currency, behind the US dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of more than $2.2 trillion. EUR/USD is the world’s most actively traded currency pair, accounting for around 30% of all transactions, followed by EUR/JPY (4%), EUR/GBP (3%), and EUR/AUD (2%).

What is the ECB, and how does it affect the euro?

The European Central Bank (ECB), headquartered in Frankfurt, Germany, serves as the Eurozone’s reserve bank. The European Central Bank sets interest rates and conducts monetary policy. The ECB’s principal objective is to keep prices stable, which entails either managing inflation or encouraging growth. Its major tool is to raise or cut interest rates. Relatively high interest rates, or the prospect of rising rates, often boost the Euro, and vice versa. The ECB Governing Council makes monetary policy decisions at eight sessions each year. Decisions are taken by the presidents of the Eurozone’s national banks and six permanent members, including ECB President Christine Lagarde.

How does inflation statistics affect the value of the Euro?

Eurozone inflation statistics, as assessed by the Harmonized Index of Consumer Prices (HICP), is an essential economic indicator for the Euro. If inflation increases faster than predicted, particularly over the ECB’s 2% objective, the ECB must boost interest rates to keep it under control. Relatively high interest rates relative to its peers normally favor the Euro, making the area more appealing as a location for global investors to store their money.

How does economic data affect the value of the Euro?

Data releases provide insight into the economy’s health and may have an influence on the euro. GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys may all have an impact on the euro’s movement. A healthy economy is advantageous for the Euro. Not only does it attract more foreign investment, but it may also urge the ECB to raise interest rates, so directly strengthening the Euro. Otherwise, if economic data is bad, the Euro is expected to decrease. Economic statistics for the four major economies in the eurozone (Germany, France, Italy, and Spain) are particularly important since they account for 75% of the Eurozone’s GDP.

How does the trade balance affect the euro?

Another important data release for the Euro is the Trade Balance. This statistic calculates the difference between what a nation makes from exports and what it spends on imports in a particular time. If a nation produces highly sought-after products, its currency will appreciate solely due to the increased demand produced by overseas purchasers looking to acquire these commodities. A positive net trade balance so enhances a currency, while a negative one weakens it.

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