During Friday’s European trading session, the EUR/USD currency pair slipped closer to 1.0370. This drop was primarily due to the Euro’s weakening, spurred by the slowing inflation rates reported in six German states. January’s Consumer Price Index (CPI) data turned out softer than expected, suggesting that the Eurozone might be on the path back to the European Central Bank’s (ECB) 2% inflation target. This scenario aligns with the central bank’s objective to ease monetary policies.
On Thursday, ECB President Christine Lagarde expressed optimism in her monetary policy statement, anticipating a win against inflation this year. This followed the ECB’s decision to cut its Deposit Facility Rate by 25 basis points, bringing it to 2.75%.
During a press conference, Lagarde signaled the ECB’s openness to further easing of policies. She described the current situation as “restrictive” while also mentioning that it’s too early to predict when adjustments might end. Lagarde emphasized a strategy based on evaluating data from each meeting rather than committing to a predefined path for interest rate cuts.
Looking ahead, investors are set to focus on the Eurozone’s Harmonized Index of Consumer Prices (HICP) flash data for January, slated for release on Monday.
But before that, preliminary HICP data from Germany is scheduled for release at 13:00 GMT today. However, given the inflation data already available from six German states, this new information might not cause much stir.
### Daily Digest: EUR/USD Under Pressure Amid USD Gains
The EUR/USD remains pressured as the U.S. dollar maintains its strength, with the U.S. Dollar Index (DXY) hovering around 108.20. The Greenback’s appeal as a safe haven strengthened after U.S. President Donald Trump reinforced his stance on imposing heavy tariffs on North American peers and BRICS nations.
On TruthSocial, Trump demanded that BRICS avoid creating or backing any currency that could replace the USD, threatening 100% tariffs for non-compliance and promising harsh economic repercussions for those defying the U.S.
Analysts suggest Trump’s tariff threats may align with his economic goals, and such actions might increase U.S. inflation. This situation could permit the Federal Reserve (Fed) to keep interest rates steady in the 4.25%-4.50% range for an extended period.
On Wednesday, the Fed opted to maintain its current policy, choosing to wait for tangible changes in inflation or labor market weakness before making moves.
As for the USD, the Personal Consumption Expenditure (PCE) Price Index for December is anticipated later today at 13:30 GMT. Economists predict core PCE inflation could have increased by 0.2% monthly, up from a 0.1% rise in November, with an annual growth projection of 2.8%.
### Technical Analysis: EUR/USD Slips Below 20-Day EMA
In the European session on Friday, the EUR/USD fell near 1.0370, dipping under the 20-day Exponential Moving Average (EMA) at approximately 1.0390. This downward movement continued after failing to hold above the 50-day EMA, which was around 1.0449 at news time.
The 14-day Relative Strength Index (RSI) is encountering resistance near 60.00, signaling that any recent recovery may have been brief.
On the downside, key support levels lie at the lows from January 20 and January 13, at 1.0266 and 1.0177 respectively. Conversely, the high from December 6 at 1.0630 stands as a critical hurdle for Euro bulls.
### Euro FAQs
The Euro is the official currency of 19 EU countries, forming the Eurozone. As the world’s second most traded currency after the USD, it made up 31% of global forex transactions in 2022 with an average daily turnover exceeding $2.2 trillion. The EUR/USD pair dominates the market, with around 30% of all trades, followed by EUR/JPY (4%), EUR/GBP (3%), and EUR/AUD (2%).
Based in Frankfurt, Germany, the European Central Bank (ECB) serves as the Eurozone’s reserve bank, shaping monetary policy and interest rates. The ECB’s primary objective is to ensure price stability, either by controlling inflation or fostering growth. Decisions regarding monetary policy are made during meetings held eight times a year by the ECB’s Governing Council, which includes the heads of Eurozone national banks and the ECB President, Christine Lagarde.
For the Euro, the Harmonized Index of Consumer Prices (HICP) is a crucial metric. Inflation surging beyond expectations, especially above the ECB’s 2% target, compels the ECB to hike interest rates to manage stability. Higher interest rates relative to global counterparts typically enhance the Euro’s appeal as an investment.
Economic data releases also impact the Euro’s value. Indicators like GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence the currency’s direction. A robust economy not only attracts foreign investments but also might prompt the ECB to raise interest rates, thereby strengthening the Euro. Conversely, weak economic data generally leads to a decline in the Euro. Data from Germany, France, Italy, and Spain—accounting for 75% of the Eurozone’s economy—hold notable significance.
Another vital indicator for the Euro is the Trade Balance, which measures the difference in earnings from exports and expenditure on imports. A surplus Trade Balance boosts a currency’s value through increased demand from foreign buyers, while a deficit usually weakens it.
