The Euro (EUR) gave up earlier gains against the US Dollar (USD) on Tuesday, falling back to the key support level of 1.0700. This reversal comes despite positive Eurozone data, as strong US wage growth raised concerns about persistent inflation.
US Employment Cost Index Fuels Dollar
The US Bureau of Labor Statistics reported a higher-than-expected increase in the Q1 Employment Cost Index (ECI), a key indicator of wage growth. This data fueled fears of continued US inflation, as rising wages can lead to higher consumer spending and ultimately put upward pressure on prices.
Eurozone Data Fails to Impress
While Eurozone preliminary inflation and GDP data for Q1 met or beat expectations, the Euro failed to sustain its gains. This suggests that market confidence in a European Central Bank (ECB) pivot to interest rate cuts from June may be waning.
ECB Rate Cut Expectations Remain
Although the Euro couldn’t capitalize on the Eurozone data, speculation about the ECB initiating rate cuts in June persists. Some policymakers even advocate for further cuts throughout the year.
Technical Analysis: EUR/USD Faces Uncertain Direction
The EUR/USD struggles to climb above the crucial 1.0700 support level and the 20-day EMA at 1.0725. The daily chart displays a symmetrical triangle formation, indicating a period of compressed volatility. A breakout above the triangle’s upward trendline (drawn from the October 3 low) or below its downward trendline (drawn from the December 28 high) could provide a clearer directional signal. The Relative Strength Index (RSI) sits within the 40.00-60.00 range, reflecting market indecision.