EUR/USD sees rally stall after more inflation data supported higher Euro.

EUR/USD is turning flat after attempting to print a fresh six-day high.
European inflation turns out to be heading higher again in several core countries, ending the disinflationary path for now.
Markets remain on edge over the rumors and pushbacks on President-elect Donald Trump’s tariff schemes and ongoing court cases.

The Euro (EUR) is trying to head higher against the US Dollar (USD) on Tuesday, after inflation numbers for the Eurozone as a whole revealed that disinflation has ended for now. Earlier expectations got already revised after the preliminary German Harmonized Index of Consumer Prices (HICP) data for December, released on Monday, showed that the monthly headline HIPC inflation jumped by 0.7%, above the 0.5% estimate. On a yearly basis, headline HICP rose by 2.9%, compared to 2.4% in November.

Meanwhile, markets are on edge over the whipsaw reactions and knee-jerk moves over the tariff plans from President-elect Donald Trump. The Washington Post published a piece mentioning that Trump was considering simplifying his tariff schemes by imposing a single universal tariff on critical imports and goods. Hours later, Trump himself came out to refute the rumors and confirm that the schemes and plans would remain in place as earlier announced.

Daily digest market movers: Questions arise for the ECB and Fed

The French preliminary HICP for December has already been released earlier on Tuesday. The monthly gauge snapped the previous disinflationary print by jumping 0.2%, below the 0.4% expectation and above the -0.1% from November. The yearly gauge came in at 1.8%, which is 0.1% higher than the 1.7% from November.
The preliminary Eurozone HICP for December has been released.
- The monthly headline HICP jumped to 0.4%, snapping the disinflationary -0.3% from the month before.
- The yearly headline HICP came in at 2.4% as expected, against the 2.2% from November.
- The monthly core HICP rallied to 0.5%, beating the -0.6% from November.
- The yearly core HICP came a touch higher than expected at 2.8% against 2.7% consensus view and the previous reading.
- For now, the European Central Bank (ECB) is projected to cut its policy rate by 25 basis points on January 30.
Italian inflation saw a similar pattern is seen as in Germany, with the preliminary December monthly HICP heading to 0.1% from -0.1%.
German Bunds ticked up quite a bit last week and stretched up to 2.47% on Monday. This Tuesday, rates are starting to ease, with the Bund currently trading around 2.46%.
European equities are having a change of heart after the European inflation data, and are heading into green numbers.

Technical Analysis: Risk for rejection not out of the way

EUR/USD is in a perfect technical bounce, though where to go next is becoming blurry. The geopolitical developments from Monday have helped the Euro find support at 1.0294 and rally all the way to nearly 1.0448. The question now will be whether the Euro has enough room left to head above 1.0450. This will not be the case if those European bonds start to fade from their Monday high points and need more upside to pull the Euro further up towards 1.05.

The first big level to break is 1.0448, the low of October 3, 2023. Once through that level, the 55-day Simple Moving Average (SMA) at 1.0558 comes into play. Another catalyst will be needed for this kind of move, as it could squeeze the Dollar bulls.

On the downside, ahead of the current two-year low at 1.0224, the 1.0294 level is now acting as the new first line of defence. It was a pivotal point on Monday, offering room for buyers in EUR/USD to get involved and push price action higher. Further down, the round level at 1.02 would mean a fresh two-year low. Breaking below that level would open up the room to head to parity, with 1.0100 as the last man standing before that magical 1.00 level.