EUR/USD extends pullback into midweek

• EUR/USD takes another step lower after Tuesday’s US inflation report. 
• The short-term uptrend is now in doubt but the move down lacks momentum. 
• Analysts at TD Securities are still penciling in June for a Fed rate cut.

EUR/USD continues its steady decline into midweek after the release of higher-than-expected inflation data from the United States (US) reduced the chances of an early interest-rate cut from the Federal Reserve (Fed). 

The pair is trading in the 1.0920s at the time of publication, down from the last major peak in the 1.0980s on Friday. 

Investors have now shifted their expectations away from the possibility of the Fed pressing the button on cutting interest rates in May, more firmly to June.

Since keeping interest rates higher for longer is positive for the US Dollar (USD), as it attracts greater capital inflows, the US Consumer Price Index (CPI) data release has seen the Greenback gain in most pairs, including EUR/USD. 

EUR/USD: June still on for first rate cut, TD Securities says 

June has firmed as the month for liftoff for economists at TD Securities, despite Tuesday’s hot inflation data, as the economists see services inflation continuing to “normalize”, according to a recent note.

"We don't think today's report meaningfully changes the Fed's inclination to first ease by the June FOMC meeting,” they said after the February CPI release. 

“In our view, services inflation should resume a clear path toward normalization over the next few months as the tougher seasonal part of the year is already behind us ," they added.  

Ultimately they see the US Dollar weakening in Q2 and Q3, which is likely to provide a positive push for EUR/USD unless the Euro (EUR) suffers equally.

Technical Analysis: EUR/USD continues correction lower

EUR/USD has registered another step lower since the 1.0981 peak established on March 8. 

The latest decline extends a sequence of falling peaks and troughs and brings into doubt the previous short-term uptrend. 

Euro vs US Dollar: 4-hour chart

That said, the move down lacks momentum and has been slower than the move up that preceded it, suggesting there is still a chance it could just be a correction rather than a reversal of the previous uptrend. 

It is still possible the correction could fall even lower. One possible zone where price could find support is between 1.0898 (February 2 high) and the top of the Measured Move’s A wave at 1.0888.

A break below 1.0867 would probably solidify the case for a trend reversal and see bears take control. 

Resumption of uptrend 

A break above 1.0955 would be required for evidence of a resumption of the uptrend. A move above the 1.0981 high of March 8 would provide confirmation as it would establish a higher high. 

After that, tough resistance is expected at the 1.1000 psychological level, which is likely to be the scene of a fierce battle between bulls and bears. 

A decisive break above 1.1000, however, would open the gates to further gains towards the key resistance level at 1.1139, the December 2023 high. 

By “decisive” it is meant a break characterized by a long green candle piercing clearly above the level and closing near its high, or three green bars in a row, breaching the level.