EUR/USD Rallies on Softer U.S. PPI, Eyes CPI for Next Move
EUR/USD extended its rally on Tuesday, climbing to a high of 1.0305 as weaker-than-expected U.S. December PPI data pressured Treasury yields and the dollar. Softer inflation prints tightened German-U.S. spreads and terminal rate expectations for the Fed and ECB, providing support for the euro. Gains in U.S. equities and a drop in USD/CNH further bolstered risk sentiment, helping EUR/USD post a +0.44% gain late in the session. Despite the rally, the pair remains vulnerable to prevailing trends in yields and inflation expectations, which have recently favored the dollar.
Technical Analysis
Technically, EUR/USD maintains a cautious bullish bias, with rising daily RSI and a rally building on Monday’s bull hammer pattern. Immediate resistance lies at 1.0305, with further upside targets at 1.0350 and 1.0400. On the downside, initial support is seen at 1.0255, followed by Monday’s low near 1.0238. The pair’s ability to sustain gains above 1.0300 will hinge on upcoming U.S. data, with CPI and retail sales reports providing critical directional cues.
Market Outlook
Focus now shifts to U.S. December CPI and retail sales, as well as Fed commentary from Barkin, Kashkari, Williams, and Goolsbee on Wednesday. A softer inflation print and signs of slowing consumer spending could further tighten spreads and weaken the dollar, driving EUR/USD higher. Conversely, upbeat data may reinforce inflation concerns and boost U.S. yields, potentially reversing the pair’s gains and setting up a test of parity. For now, EUR/USD shorts are on the defensive, but the broader trend remains data-dependent.