EURUSD Eases Down As Market Reacts to Potential Early ECB Interest Cuts

Summary:
• Inflation rates fell more than expected in France, and comments by ECB Governing Council Member, Villeroy, has seen EURUSD head lower.

EURUSD is trading slightly lower in the early hours of trading on Friday, going down -0.08% to trade at 1.0763 at 7.20 GMT. The pair has lost the upside momentum built over the last two trading sessions following dovish comments by European Central Bank (ECB) Governing Council member and Bank of France President Francois Villeroy de Galhau. According to Villeroy, the bank should not wait too long before the first rate cut.

The US dollar is currently under pressure after the US economy registered mixed results in Thursday’s key releases. On the one hand, Core Retail Sales fell -0.6% in January, below the projected +0.2%, and Industrial Production fell -0.1% vs. the forecasted +0.2%. On the other hand, Initial Jobless Claims fell lower than expected, coming in at 212,000 against the projected 219,000 and Philadelphia Fed Manufacturing rose +5.2%, beating the projected decline of -0.8%.

The mixed signals by the US economy have seen the greenback lose some of its propulsion. The DXY index, which measures the strength of the dollar against six major currencies, has eased -0.5% since Tuesday, underlining its vulnerability heading into the weekend. France, the Eurozone’s second-largest economy, released a lower-than-expected inflation reading for January (-0.3% vs. projected- 0.2%), adding to the dovish sentiment around the euro.

The biggest impact on the EURUSD pair will almost certainly be from the January US Producer Price Index (PPI). The reading measures the changes in the price of goods sold by manufacturers, and it is used to gauge inflation. A major swing on either side of the consensus +0.1% will define the direction taken by EURUSD heading into the weekend. Furthermore, the dollar could be strengthened by an alignment between the PPI reading and the CPI figure released earlier this week.

Technical analysis

The intraday momentum indicators for EURUSD are sending mixed signals and call for a cautious approach.  The trading pair will swing from the 1.0750 pivot, with a move above the first resistance at 1.0780, signaling control by the bulls. Further gains beyond this could see the pair rise up to encounter the second resistance at 1.0795. However, a swing below the pivot with a breach past the first support at 1.0735 will signal bearish control, with a likelihood of further downside action to test 1.0720.

EURUSD 30-minute chart