After a quiet start to the week, the euro has posted gains in the Tuesday session. Currently, EUR/USD is trading at 1.2126, up 0.43% on the day.
Eurozone inflation confidence jump
There was positive news out of the eurozone on Tuesday, and investors responded with a thumbs-up, sending the euro above the 1.21 level. German CPI rebounded nicely in December, with a solid gain of 0.5 per cent. Inflation has struggled in Germany, as prior to this reading, CPI had declined in four of the past five months. Will we see inflation levels head higher in 2021? Although COVID-19 continues has resulted in lockdowns across the bloc which continue to hobble economic activity, the roll-out of COVID vaccines is expected to turn the tide and result in a resurgence in the economy and send inflation higher.
Financial experts are feeling more optimistic about economic conditions for the German economy. Germany’s ZEW Economic Sentiment improved in January to 61.8, up from 55.0 and above expectations. This marked a 4-month high. The report found that there is optimism over economic conditions, with expectations that inflation and exports will move higher. It was a similar story for the all-eurozone index, which climbed to 58.3 points. In the meantime, however, headline inflation in the eurozone is pointing downwards. We’ll get a look at CPI on Wednesday, with headline CPI expected at -0.3% for a fourth consecutive month.
The US will not release any tier-1 events until Thursday, after the inauguration of Joe Biden on Wednesday. Recently, the direction of the US dollar has been more dependent on US Treasury yield movement than on major events. This was apparent late last week, as the US dollar surged against the euro despite weak employment and retail sales numbers. If the demand for US Treasuries continues, the dollar could show gains.
EUR/USD Technical
- EUR/USD is testing resistance at 1.2125. Above, 1.2282 an important weekly resistance line
- The 50-MA line is within striking distance at 1.2070. Below, we find support at 1.2059, followed closely by support at 1.2040