- EUR/USD's initial losses were pared following military actions in Yemen, prompting investors to take refuge in safe assets.
- US PPI data disappoints expectations, fueling speculation about a possible Fed rate cut in March.
- Eurozone inflation is in line with forecasts; ECB officials' comments on rate cuts add to market considerations.
The Euro (EUR) pared some of its losses in early trading of the North American session after falling towards its daily low of 1.0935 amid an escalating conflict in the Middle East. The launch of attacks by the US and UK against the Houthis soured sentiment, which had calmed of late. Hence, the EUR/USD is trading at 1.0970, up 0.02% on the day.
EUR/USD rose slightly following developments in the Middle East as sentiment improved
According to Reuters, US and British planes, ships and submarines launched dozens of airstrikes in Yemen overnight in retaliation for the Houthis, who have been attacking ships in the Red Sea. Therefore, safety-seeking market participants bought Gold and safe-haven pairs, weighing on EUR/USD in the overnight session.
Aside from geopolitical developments, the US Bureau of Labor Statistics (BLS) showed that the Producer Price Index (PPI) fell below estimates, with the monthly PPI falling -0.1%, below of the forecasts of 0.1%. In a 12-month reading, the PPI rose 1%, below estimates of 1.9%. Core PPI remained at 0% from November data, but below estimates, while year-on-year figures fell below forecasts and the previous reading, from 2% to 1.8%.
Following the data, traders had increased the odds of a rate cut in March from 70% yesterday to 84% at the time of writing, and were expecting the US Federal Reserve to cut rates. by 170 basis points towards the end of the year.
Although the latest US consumer inflation report showed that prices remained elevated, investors appear confident that the US central bank will ease policy sooner than expected. In the latest Summary of Economic Projections (SEP), Fed officials projected three rate cuts of 25 basis points by the end of 2024.
Meanwhile, Fed officials reiterated that cutting rates in March is too soon, adding that while progress had been made on inflation, December data bucked the trend.
As for the Eurozone (EU), inflation in France was in line with forecasts of 3.7% and exceeded the 3.5% in November. On top of that, European Central Bank (ECB) officials had their wires crossed, as chief economist Philip Lane said rate cuts “are not an issue for the short term.”
EUR/USD Price Analysis: Technical Outlook
From a technical point of view, the EUR/USD pair presents a bias between neutral and bullish, although the consecutive doji confirm the indecision of the traders. To resume the uptrend, the Euro must break above 1.1000 to challenge a two-and-a-half year resistance trend line around 1.1030/50, followed by 1.1100. If the pair declines below 1.0900 and breaks below the daily low of 1.0876, the doors towards 1.0800 will open.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
