EUR/USD gains as US PPI rises moderately

• EUR/USD gains to near 1.0270 on moderate growth in the US PPI data for December.
• President-elect Donald Trump’s policies are expected to boost US inflation and growth.
• ECB’s Rehn sees monetary policy restrictions concluding by mid-summer.

EUR/USD jumps to near 1.0270 in Tuesday’s North American session after the release of the United States (US) Producer Price Index (PPI) data for December, which come in lower than projected. The report showed that the month-on-month headline PPI rose moderately by 0.2%, while the core PPI - which excludes volatile food and energy items - remained flat. On year, the headline PPI rose by 3.3%, faster than November's reading of 3.0% but slower than estimates of 3.4%. The core PPI grew by 3.5% against 3.4% in November. Economists expected the core PPI to have accelerated to 3.8%.

The immediate reaction to the US Dollar was slightly bearish, which forced it to surrenders intraday gains, with the US Dollar Index (DXY) flattening around 109.50. However, the near-term trend in the US Dollar remains firm as the 30-Day Fed Funds futures prices signal higher probabilities for only one interest rate cut from the Federal Reserve (Fed) this year, according to the CME FedWatch tool, compared to two rate cuts shown by the dot plot at the latest Fed Summary of Economic Projections (SEP).

Traders have trimmed Fed dovish bets on the back of robust labor demand, as shown by the latest US Nonfarm Payrolls (NFP) data released on Friday, which signifies a strong economic outlook. Also, market participants expect inflationary pressures to remain stubborn under President-elect Donald Trump’s administration as incoming policies, such as immigration controls, tariff hikes, and lower taxes, will boost aggregate demand and growth.

For fresh cues on the current status of inflation, investors will focus on the US Consumer Price Index (CPI) data for December, which will be released on Wednesday.

Daily digest market movers: EUR/USD rises on Euro's outperformance

• EUR/USD climbs to near 1.0270 as the Euro (EUR) performs strongly against its major peers on Tuesday. The Euro gains even though European Central Bank (ECB) officials continue to support market expectations of further policy-easing, which have stemmed from a weak Eurozone economic outlook amid fears that US President-elect Donald Trump could slap hefty tariff hikes on the old continent, a scenario that could weaken the export sector.
• ECB policymaker and Bank of Finland Governor Olli Rehn said in a conference on Monday that he expects the monetary policy to leave the restrictive territory in the coming months, at the latest by “midsummer”. However, Rehn’s comments indicated he is not worried about the Trump trade. Rehn argued that firms would find ways to “circumvent” them and even a recent decline in direct trade between China and the US was masking such a trend, Reuters reported.
• Market participants expect the ECB to cut interest rates in each of their next four policy meetings, suggesting that the Deposit Facility rate will come down to 2%. Analysts at Barclays expect the Eurozone to start 2025 on a weak note, notably due to a “significant sluggishness“ in Germany’s manufacturing sector.

Technical Analysis: EUR/USD bounces back from to near 1.0270

EUR/USD bounces to near 1.0270 in Tuesday’s North American session after refreshing its more-than-two-year low around 1.0175 on Monday. However, the outlook for the major currency pair is broadly bearish as the 20-week Exponential Moving Average (EMA) at 1.0585 is declining. 

The 14-week Relative Strength Index (RSI) slides below 30.00, indicating a strong downside momentum. 

Looking down, the pair could find support near the October 2022 high near 1.0100. Conversely, the January 6 high of 1.0437 will be the key barrier for the Euro bulls.