EUR/USD drops to near 1.0790 ahead of Eurozone inflation data

• EUR/USD extends losses as the US Dollar rose after Fed’s Powell pushed back expectations of March rate cuts.
• The Euro faced a challenge of heightened expectations of an ECB interest rate cut in June after lower-than-expected German inflation data.
• Eurozone inflation, and US ISM Manufacturing PMI data could trigger the pair’s next moves.

The EUR/USD pair continues to lose ground for the second successive day, stretching lower to near 1.0790 during the European session on Thursday. The US Dollar (USD) gains upward support against the Euro (EUR), fuelled by Federal Reserve (Fed) Chair Jerome Powell's dismissal of a rate cut in the upcoming March meeting. Powell’s comments have also supported US Treasury yields.

The Euro faced difficulties following softer preliminary Consumer Price Index (CPI) data from Germany released on Wednesday. This has heightened market expectations of an interest rate cut by the European Central Bank (ECB) in June. However, earlier in the week, ECB Vice President Luis de Guindos indicated that the ECB would contemplate interest rate cuts only when there is confidence that inflation aligns with the central bank's 2% goal.

German Consumer Price Index (CPI) for January showed a year-on-year increase of 2.9%, lower than the expected 3.3% from December's reading of 3.7%. Meanwhile, the monthly consumer inflation met expectations, rising to 0.2% from the previous reading of 0.1%. The Harmonized Index of Consumer Prices YoY increased 3.1%, lower than the previous figure of 3.8%. The inflation report for the whole Eurozone is scheduled for release at 10:00 GMT.

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

The US ADP Employment Change reported a 107K jobs increase for January, falling short of the expected 145K, and marked a decrease from the previous reading of 158K in December. Attention on Thursday is expected to focus on significant economic indicators such as US Initial Jobless Claims, Nonfarm Productivity, and ISM Manufacturing PMI.

Daily digest market movers: EUR/USD loses ground after softer German inflation figures

• Germany’s annual Retail Sales for December fell by 1.7%, lower than the 2.4% decrease seen in November.
• The German Harmonized Index of Consumer Prices (MoM) declined by 0.2%, more than the market consensus of a 0.1% decline.
• German Statistics Office showed that Unemployment Change fell by 2K against the expected growth of 11K in January. The seasonally adjusted Unemployment Rate fell to 5.8%, while markets expected it to be unchanged at 5.9%.
• The US Employment Cost Index (ECI), released by the US Bureau of Labour Statistics, fell to 0.9% in the fourth quarter from the previous 1.1% rise.
• Chicago Purchasing Managers' Index eased to 46 in January. The market expectation was a rise to 48 from 47.2 prior.

Technical Analysis: EUR/USD extends losses towards major support at 1.0750

EUR/USD drops to near 1.0790 on Thursday, close to support at the major level of 1.0750. A break below this level could put downward pressure on the EUR/USD pair to navigate the support zone near the psychological level at 1.0700.

On the upside, the EUR/USD pair could find immediate resistance at the psychological level of 1.0800. A breakthrough above this level could inspire the bulls of the pair to test the 21-day Exponential Moving Average (EMA) at 1.0826, followed by the major barrier at 1.0850 and the 23.6% Fibonacci retracement level at 1.0867.

EUR/USD: Four-Hour Chart