EUR/USD consolidates around 1.03 as bond market gets stressed over inflation

• EUR/USD consolidates around 1.0300 on Thursday ahead of a calm trading day regarding economic data. 
• The bond market looks to be on fire, with UK Gilt yields surging as inflation concerns weight.
• Markets are getting increasingly nervous over the vast amount of fiscal spending, reforms, and tariff imposing that President-elect Donald Trump is announcing. 

The EUR/USD pair is on the back foot again and consolidates around 1.0300 on Thursday. The recent dip lower comes as markets start to get worried about the vast amount of measures, reforms, spending, and tariff levies that President-elect Donald Trump announced before his inauguration on January 20. As a result, US yields are rising further this week.

Meanwhile, UK Gilt yields are experiencing a mini-crisis. Over the past few days, long-term UK borrowing costs have soared, and the British Pound (GBP) has fallen. This could be a sign that investors have lost faith in the government’s ability to manage the national debt and control inflation.  

Daily digest market movers: Inflation uncertainty

• US stock markets will remain closed on Thursday, observing a National Day of Mourning in honor of former President Jimmy Carter. The bond market will operate on a shortened schedule, closing early.
• Economic data earlier this Thursday showed that German Imports fell by 3.3% in November, while Exports rose by 2.1%. 
• Excessive concern about possible inflation shocks can be harmful to the economy, European Central Bank (ECB) Executive Board member Piero Cipollone told Corriere della Sera in an interview, Bloomberg reports.
• The ECB should keep lowering borrowing costs at every meeting as long as the retreat in inflation matches its projections, according to Governing Council member François Villeroy de Galhau on Wednesday, Reuters reported.
• German Bunds ticked up further to hit another fresh six-month high of 2.571%, which is no longer far off from the 2.642% high seen in July 2024. 
• European equities are trading in the red, taking over the downbeat tone seen in Asia.

Technical Analysis: Concerns are growing

Concerns are emerging, and clearly, inflation is becoming a top priority for traders regarding positioning. That means the US Dollar (USD) should become even more supported, as US yields will keep surging, widening the rate differential gap between the Eurozone and the US. 

A recovery for EUR/USD would involve a first-stage move to 1.0448, the low of October 3, 2023. Once through that level, the 55-day Simple Moving Average (SMA) at 1.0539 would come into play. Another catalyst will be needed for this kind of move, as it could squeeze the Dollar bulls. 

On the downside, the two-year low of 1.0224 reached on January 2 is now the first level to watch after the 1.0294 level lost its importance this week. Further down, the round level at 1.02 would mean a fresh two-year low. Breaking below that level would open up the room to head to parity, with 1.0100 as the last man standing before that magical 1.00 level. 

EUR/USD: Daily Chart