Market Analysis

EUR/USD Holds Steady Near 1.0850 as Markets Await Eurozone and US Inflation Data

Amos Simanungkalit · 27 May15.1K Views

EUR/USD is trading in a narrow range near 1.0850 during Monday's European session, marking a quiet start to the week ahead of upcoming inflation data releases in both the US and Eurozone on Friday. The currency pair shows strength as ECB policymakers refrain from committing to extending the current rate-cut cycle beyond their June meeting.

Concerns about potential rekindling of inflationary pressures have led ECB officials to avoid promising additional rate cuts. Traders have adjusted their expectations, now anticipating two rate cuts this year instead of the previously expected three, influenced by recent economic indicators like Negotiated Wage Rates for Q1 and preliminary HCOB Composite PMI data for May.

While higher wage growth typically stimulates consumer spending and inflation, ECB board member Joachim Nagel downplays its immediate impact, citing it as a lagging indicator with a long-term soft trend expected.

In economic news, German IFO Business Climate, Current Assessment, and Expectations data for May have been released. Although the overall figures missed expectations, the Euro has remained steady:

The German IFO Business Climate Index slipped marginally to 89.3 from April's 89.4, falling short of the forecasted rise to 90.3.

The Current Economic Assessment Index declined to 88.3 from 88.9, missing the consensus of 89.9.

The IFO Expectations Index, reflecting business sentiment for the next six months, stood at 90.4, slightly below the expected 90.5 but higher than the previous 89.7 reading.

Technically, EUR/USD is consolidating around 1.0850 following a breakout from a Symmetrical Triangle pattern on the daily chart, suggesting underlying strength. The pair remains above all short- to long-term Exponential Moving Averages (EMAs).

The 14-period Relative Strength Index (RSI) has moderated into the 40.00-60.00 range, indicating a pause in upward momentum. A potential upside could see EUR/USD testing the two-month high around 1.0900, with further targets at 1.0950 and the psychological barrier of 1.1000. Conversely, a decline below the 200-day EMA at 1.0800 could signal further downside pressure.