EUR/USD trims intraday losses after Eurozone Economic Sentiment, trades near to 1.0770

• EUR/USD declines as the US Dollar improves on market caution ahead of US Inflation.
• The Euro receives a challenge from expectations of an ECB interest rate cut at the start of the second quarter.
• US CPI is expected to moderate at the reading of 2.9% YoY, down from 3.4% prior.

The EUR/USD pair continues its downtrend for the second consecutive day as the US Dollar (USD) gains strength, as traders exercise caution ahead of the release of inflation data from the United States (US) scheduled for Tuesday. Additionally, Economic Sentiment data from the Eurozone and Germany has been released, and given the EUR/USD pair a small boost in the immediate reaction to the data.

The Euro faces resistance as speculation mounts regarding potential interest rate cuts by the European Central Bank (ECB) at the start of the second quarter. Comments from ECB Executive Board member Piero Cipollone indicated that there may not be a need for the ECB to further restrict demand in its efforts to address inflation, suggesting that interest rates might not need to be raised further.

The US Dollar Index (DXY), tracking the USD against a basket of six major currencies, maintains its upward trajectory for the second successive session. Expectations of inflationary pressures in the United States are driving speculation that the Federal Reserve (Fed) will refrain from cutting interest rates at the upcoming March meeting. This sentiment is bolstering the attractiveness of the US Dollar relative to the Euro.

Daily digest market movers: EUR/USD extends its losses as US Dollar improves

• The US Dollar Index hovers around 104.20 with the 2-year and 10-year US Treasury yields at 4.47% and 4.17%, respectively, by the press time.
• Traders are pricing in a mere 14% probability of a rate cut by the Federal Reserve (Fed) in March. However, the likelihood of a rate cut at the May meeting is estimated to be around 60%.
• Dallas Federal Reserve (Fed) Bank President Lorie K. Logan stated that there is currently no immediate necessity to reduce interest rates. She recognized "tremendous progress" in controlling inflation but stressed the importance of obtaining additional evidence to ensure the sustainability of this progress.
• The US Monthly Budget Statement for January showed a deficit of $22 billion, slightly higher than the expected deficit of $21 billion and the previous deficit of $129 billion.
• 3-month and 6-month US Treasury bills were auctioned at rates of 5.23% and 5.065%, respectively.
• The Euro rallies a little after Eurozone and German Economic Sentiment data from ZEW come in above expectations at 25 vs. 20.1 forecast, and 19.9 vs. 17.5 expected, respectively.
• German Current Situation ZEW sentiment, however, dips below expectations, coming in at -81.7 versus -79 forecast.

Technical Analysis: EUR/USD hovers above the major support of 1.0750

EUR/USD trades near 1.0770 on Tuesday, close to the immediate support at the major level of 1.0750. A break below this level could put downward pressure on the EUR/USD pair to revisit the previous week’s low at 1.0722 followed by the psychological support of 1.0700 level.

On the upside, the EUR/USD pair could find an immediate barrier at the 21-4hr Exponential Moving Average (EMA) at 1.0773 before the psychological resistance of 1.0800. A breakthrough above this level could inspire the bulls of the pair to test the 23.6% Fibonacci retracement level at 1.0821 followed by the major support at 1.0850.

EUR/USD: Four-Hour Chart