EUR/USD treads water above 1.0700 after Eurozone GDP, focus shifts to US Retail Sales

EUR/USD lost ground as US Dollar surged after the release of solid US CPI data.
The Euro received upward support from the improved Economic Sentiment data.
Eurozone GDP YoY and QoQ are unchanged at the readings of 0.1% and 0.0%, respectively, in Q4.
FedWatch Tool suggests 37% and 51% probability of a 25 bps rate cut by the Fed in May and June, respectively.

The EUR/USD pair grapples to rebound from three-month lows on Wednesday. However, the Euro (EUR) faces challenges after the release of the seasonally adjusted Eurozone Gross Domestic Product (GDP) data, which showed consistency by meeting the market expectations for the fourth quarter, which weakens the Euro, consequently, undermining the EUR/USD pair. Furthermore, the higher-than-expected US Inflation has shifted market sentiment toward no interest rate adjustment by the Federal Reserve (Fed) in the upcoming March meeting. This has provided upward support for the US Dollar (USD) against the Euro (EUR).

The Euro experienced a moment of respite following the release of better-than-expected Economic Sentiment data from both the Eurozone and Germany on Tuesday. Investors are now eagerly awaiting preliminary Gross Domestic Product (GDP) data slated for release on Wednesday. Furthermore, market participants are keenly paying attention to a scheduled speech by Christine Lagarde, the President of the European Central Bank (ECB), on Thursday.

The US Dollar Index (DXY) rebounds from intraday losses and continues to extend gains despite downbeat US Treasury yields. Market sentiment has undergone a significant shift, with expectations for an unchanged interest rate next month soaring to near 90%, a marked difference from just a month ago. Investors are now contemplating the possibility of a rate cut by the Federal Reserve (Fed) in June.

Daily digest market movers: EUR/USD depreciates amid an improved US Dollar

The US Dollar Index rises to 104.90 with the 2-year and 10-year US Treasury yields at 4.60% and 4.29%, respectively, by the press time.
According to the FedWatch Tool, traders are pricing in a 37% probability of a 25 basis points (bps) rate cut by the Federal Reserve in May and 51% in June.
US headline Consumer Price Index (CPI) rose by 3.1% in January, surpassing the expected 2.9% but below the previous rate of 3.4%.
US Inflation increased by 0.3% MoM, against the expectation of maintaining the previous reading of 0.2%.
US Core CPI (YoY) remained consistent at 3.9% against the market expectation of a decline to 3.7% in January.
US Core Inflation (MoM) increased by 0.4% against the 0.3% as expected to be unchanged in January.
ECB Vice President Luis de Guindos emphasized that although progress is being made, wage pressures persist at elevated levels, and there isn’t enough data available yet to confirm a reduction in these pressures.
The preliminary Eurozone Gross Domestic Product (GDP) seasonally adjusted remained unchanged at 0.1% year-over-year in the fourth quarter, aligning with market expectations.
The Eurozone GDP seasonally adjusted quarter-over-quarter remained flat at 0.0%, consistent with the reading in the previous quarter.

Technical Analysis: EUR/USD hovers around the psychological level of 1.0700

EUR/USD trades near a psychological level of 1.0700 on Wednesday, followed by the next major support at 1.0650 level. A break below the latter could push the EUR/USD pair to navigate the psychological region around 1.0600.

On the upside, the EUR/USD pair could find an immediate barrier at the major level of 1.0750 followed by the 50-4hr Exponential Moving Average (EMA) at 1.0770. A breakthrough above this level could influence the pair to explore the area around the 23.6% Fibonacci retracement level at 1.0799 aligned with the psychological barrier at 1.0800.