EUR/USD Faces Pressure as Eurozone CPI Surprises on the Downside

The EUR/USD currency pair is grappling with losses as the Eurozone's Consumer Price Index (CPI) for May demonstrates unexpectedly lower inflation. This shift opens the door for the European Central Bank (ECB) to consider further monetary easing to bolster the economy.

Currently, the US Dollar Index hovers around 98.60, near a six-week low. At the time of writing, EUR/USD is reversing its earlier rally, dropping below the critical 1.1400 mark after peaking at 1.1450.

Eurozone Inflation Data Offers Breathing Room for ECB

The headline CPI for May showed stagnation, with the annual rate dipping below 2% for the first time in eight months, down from 2.2% in April. The Core CPI mirrored this trend, remaining flat month-over-month and easing to 2.3% on an annual basis. This downturn was better than anticipated following expectations of a decline to 2.5%.

These figures are likely to encourage the ECB as it gears up for a potential eighth consecutive interest rate cut this Thursday. President Christine Lagarde is expected to maintain a cautious stance, asserting that future policy decisions will hinge on economic data, although market trends may price in further cuts, exerting pressure on the Euro.

Anticipation Builds for Upcoming US Economic Reports

Attention now shifts to the US Factory Orders report set to be released later today. Analysts predict a considerable drop in April figures, a potential aftermath of President Trump’s recent Liberation Day. A weak reading could stifle any chances of a US Dollar recovery, especially after disappointing manufacturing data released on Monday.

Current Currency Movements

In today’s market, the Euro has shown some strength, particularly against the New Zealand Dollar. The fluctuations among major currencies indicate slight movements, with the Euro experiencing minimal gains against most.

US Dollar Weakness Continues, Impacting Euro Dynamics

Despite the recent rebound of the US Dollar, the Euro has maintained its upward trajectory. The US Dollar Index has dropped below crucial psychological levels, remaining under 99.00.

Additionally, Eurozone employment figures for April showed a drop in the unemployment rate to 6.2%, suggesting modest economic improvement, while US manufacturing activity has shown signs of weakening, raising concerns about trade uncertainties and supply chain disruptions.

Looking Ahead: Key US Releases Loom

Later today, all eyes will be on the Factory Orders report and the JOLTS Job Openings data. Expected to reveal a steady 7.1 million job openings, these figures will be crucial as the week culminates in the highly anticipated Nonfarm Payrolls report on Friday.

Technical Analysis: Potential Barriers for EUR/USD

Although EUR/USD reached a six-week peak at 1.1450, it has struggled to solidify gains above the resistance levels of 1.1415 to 1.1435. Immediate resistance is now set at the 1.1450 trendline, while failure to break this threshold could lead to revisiting the May 30 low of 1.1310.

Conclusion: A Volatile Market Awaits

As traders brace for significant data releases, the volatility in both the Euro and the US Dollar is expected to continue. Investors will be watching closely, as shifts in economic indicators could reshape currency dynamics in the coming weeks.