EUR/USD price dips to three-day low on Fed continued inflation concerns

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Sholanke Dele

09.01.2025

EUR/USD price dips to three-day low on Fed continued inflation concerns — EUR/USD dips to 1.0270 as Fed’s inflation concerns strengthen US Dollar

EUR/USD currency pair continues to face downward pressure, firmly entrenched in a bearish channel since December. On January 6th, EUR/USD posted a 1.4% gain, reaching 1.0440, as the market initially showed signs of optimism.

Despite the brief surge in early January, the pair has once again retraced its steps. The rally quickly lost steam after the currency pair encountered the upper resistance level of the ongoing bearish channel. In the days that followed, EUR/USD retraced all the earlier gains, dipping to a three-day low of 1.0270 on January 8th before closing at 1.0317.

This decline persisted into January 9th, with EUR/USD trading near 1.02990 in the European session, continuing to show signs of weakness.

EUR/USD price dynamics (November 2024-January 2025). Source: TradingView

On the macroeconomic front, the US Dollar gained support as the Federal Reserve maintained a cautious stance on further policy easing. The minutes from the December Federal Open Market Committee (FOMC) meeting revealed that policymakers are concerned about inflation’s slow progress toward the 2% target. Notably, the minutes highlighted that inflationary pressures could persist longer than anticipated, especially due to potential shifts in trade and immigration policies. This sentiment was echoed by Raphael Bostic, President of the Atlanta Fed, who warned on January 9th that price pressures might encounter bumps on the path to the central bank's inflation target.

EUR/USD price forecast: Technical signals indicate further downside

This dovish tone from the Fed has contributed to the US Dollar's strength, particularly as markets reconsider the timing and extent of further rate cuts. While EUR/USD struggles to break free from its bearish channel, traders will be keeping a close eye on economic data, inflation trends, and central bank rhetoric for any signs of a shift in market sentiment.

The technical picture suggests that EUR/USD is still within its broader bearish trend, with the Relative Strength Index (RSI) below 50 but not yet oversold, implying potential further downside if the momentum continues. The next moves in the pair is highly dependent on the upcoming economic events and policy decisions hence potential shifts in monetary policy or inflation data could provide further volatility.

EUR/USD realigned with its bearish trend, trading at 1.0320 during the European session on January 7th. Weak German economic data, including a 0.6% MoM decline in retail sales, pressured the Euro.

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