EURUSD Heads South As Eurozone CPI Fails to Fend Off Pressure

Summary:
• EURUSD is on the downtrend for the second consecutive session after the Eurozone CPI met expectations amid a dollar-leaning risk sentiment.

EURUSD extended its losses on Tuesday, as the market sentiment favoured the dollar ahead of a highly anticipated interest policy announcement by the Federal Reserve. After Monday’s CPI release, the euro has a muted day as far as Eurozone fundamentals go. This exposes it to further downside risk as investors’ attention is currently fixated on the greenback. EURUSD traded near two-week lows at 1.0845 at the time of writing.

The euro is on a 10-day downtrend against the US dollar as of this writing, and has broken lower on the weekly chart, having lost about 0.83% of its value in the last two weeks. The Eurozone February CPI released on Monday failed to provide upside propulsion for the EURUSD trading pair, after meeting the forecast figures.

The Eurozone Core CPI (excluding food, energy, alcohol, and tobacco) came in at 3.1% year-on-year, while headline inflation read 2.6% year-on-year. Furthermore, the monthly inflation also met the forecast figure, after rising from -0.4% to 0.6%.  These figures will provide support for the EURUSD pair much as their upside remains limited.

ECB policymaker Pablo de Cos hinted at a possible June rate cut on Sunday. Furthermore, his sentiment was mirrored in ECB Vice President Luis de Guindos’ statement on Wednesday, which stated that the bank would have adequate data for a decisive action in June.  The latest CPI reading certainly provides support to their view.

Meanwhile, the US dollar will likely continue exerting downward pressure on the euro, as rising US Treasury yields and safe haven sentiment weigh in. Benchmark 10-year and 5-year bonds are back above 4.300%, while rising temperatures in the Israel-Hamas war provide safe haven support.

Technical analysis

EURUSD pivot is at 1.0880, and the RSI favours the downside. This will likely keep the sellers in control as long as trading action remains below the pivot level. Furthermore, extended control by the sellers could break the support at 1.0840, beyond which the pair could test 1.0825. However, a return to action above 1.0880 will put control in buyers’ hands. Extended control will likely break the next resistance at 1.0890, from which point the pair could test 1.0905.