The EUR/USD currency pair experienced a significant uptick following softer-than-anticipated US Consumer Price Index (CPI) data. Released on Wednesday, the report revealed that US inflation, as measured by the CPI, rose by 2.9% annually in December, aligning with market expectations. However, the core annual CPI reading came in at 3.2%, falling short of the expected 3.3% and lower than the previous month's 3.4%. This unexpected softness in inflation figures led to an immediate decline in the US Dollar and buoyed Wall Street, as investors shifted towards risk assets.
The Euro, though maintaining its ground against the US Dollar, was kept in check by these tepid figures. In the daily chart analysis, the EUR/USD pair continues to trade below a bearish 20 Simple Moving Average (SMA), which offers dynamic resistance around the 1.0350 mark. Despite the rally, the pair still faces resistance in the form of a declining 100 SMA and a flat 200 SMA, positioned between the 1.0770/1.0800 range. The Eurozone reported a modest increase in November's Industrial Production by 0.2% monthly, below the anticipated 0.3%, which further restrained the Euro's movement.
In contrast, the United States saw its Industrial Production dip by 1.9% compared to the previous year, a steeper decline than the earlier 1.1% fall, although it matched forecasts. The downward surprise in both the headline and core CPI figures from the US sparked risk-on trading sentiment in financial markets. Major US banks also reported earnings that exceeded expectations, adding momentum to Wall Street's rally and putting additional pressure on the Dollar.
During the first half of Wednesday's trading session, the EUR/USD pair extended its recovery, stabilizing around the 1.0300 region by mid-European session. Despite bullish near-term signals for the EUR/USD pair, analysts suggest that breaking above the 1.0350 resistance level is crucial for sustaining and extending its rally.
The UK's December CPI inflation data also contributed to the market dynamics, as it fell to 2.5% year-on-year, below the 2.7% forecasted by analysts. This data point from across the Atlantic further supports the narrative of easing inflationary pressures globally, influencing currency movements and economic strategies.