EUR/USD Outlook: German CPI at 0.3% and Diverging Policies Drive Market
The EUR/USD pair is navigating mixed sentiment as traders focus on key economic releases this week.
German Preliminary CPI m/m is forecast at 0.3%, marking a recovery from last month’s decline of -0.2%. On Tuesday, Core CPI Flash Estimate y/y is expected to hold steady at 2.7%, while the broader CPI Flash Estimate is projected to rise to 2.4%, signaling persistent inflation challenges in the Eurozone.
Key Factors Driving EUR/USD Performance
Diverging Central Bank Policies The EUR/USD pair faces headwinds due to contrasting monetary policy outlooks between the European Central Bank (ECB) and the U.S. Federal Reserve. The ECB is expected to implement at least four 25 bps rate cuts in 2025, reflecting concerns over inflation undershooting its 2% target. ECB officials, including Governing Council member Yannis Stournaras, anticipate base interest rates falling to around 2% by autumn.
Meanwhile, the Federal Reserve has signaled a more cautious stance. After three rate cuts in 2024, the Fed’s dot plot projects the Federal Funds Rate to end 2025 at 3.9%, indicating only two additional cuts. Fed officials emphasize the need for restrictive policy until inflation demonstrates a sustained return to its 2% target.
Inflation Data in Focus This week’s German CPI and Eurozone inflation data will play a crucial role in shaping sentiment. Rising inflation could support the Euro, while any downside surprises may amplify bearish pressures. Traders are also eyeing the HCOB Composite PMI for insights into the region’s economic health.
EUR/USD Technical Analysis
EUR/USD is trading at $1.03107, up 0.03% intraday, consolidating near key support and resistance levels. Immediate support lies at $1.02579, followed by deeper levels at $1.02109 and $1.01664. On the upside, resistance is seen at $1.03929, $1.04582, and $1.05136.
The pair is trading below the 50-day EMA at $1.03769, indicating bearish momentum. The RSI at 41 reflects subdued momentum, suggesting potential oversold conditions. Traders should watch the pivot point at $1.03453, which could signal the next directional move. A sustained breach below this level may reinforce the bearish trend.
Actionable Insights
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Support Levels: $1.02579, $1.02109, $1.01664.
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Resistance Levels: $1.03929, $1.04582, $1.05136.
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Trading Strategy: Sell below $1.03461, targeting $1.02586 with a stop-loss at $1.03944.
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