EUR/USD declines as German inflation cools faster than anticipated

EUR/USD comes under pressure during Thursday’s North American session, dipping below 1.0540, as Germany’s flash Harmonized Index of Consumer Prices (HICP) for November grows slower than anticipated. According to Germany's Federal Statistics Office, annual HICP rose by 2.4%, missing the forecasted 2.6%. On a monthly basis, HICP contracted by 0.7%, exceeding expectations of a 0.5% decline, after a 0.4% rise in October.

The modest increase in German inflation has heightened market speculation that the European Central Bank (ECB) might implement a larger-than-usual rate cut of 50 basis points (bps). Earlier, ECB board member Isabel Schnabel’s comments in a Bloomberg interview on Wednesday, which were less dovish than expected, prompted traders to temper their expectations of aggressive rate cuts. Schnabel stated she saw no risk of inflation falling below the ECB’s target and emphasized that central bank stimulus cannot resolve the structural challenges facing the Eurozone.

Looking ahead, investor attention turns to the Eurozone's flash HICP data for November, due Friday. Economists anticipate headline and core HICP—excluding volatile items—to rise to 2.3% and 2.8%, respectively.

Elsewhere, concerns over a potential decline in Eurozone exports due to hefty tariffs proposed by U.S. President-elect Donald Trump have eased slightly, offering some support to the Euro (EUR). In an interview with the Financial Times on Thursday, ECB President Christine Lagarde commented on Trump’s ambiguous stance on European tariffs, suggesting it may signal openness to negotiations. Lagarde remarked, “It’s difficult to make America great again if global demand weakens under the weight of trade tariffs,” according to MACE News.

Daily Digest Market Movers: EUR/USD Slips as US Dollar Rebounds on Thanksgiving

EUR/USD Retreats: The pair fell to near 1.0550 during Thursday's North American session after reaching a fresh weekly high of 1.0590 on Wednesday. Pressure on the Euro grew as the US Dollar (USD) gained strength amid low trading volumes during the Thanksgiving holiday weekend in the US.
US Dollar Index Rebounds: The US Dollar Index (DXY), which tracks the USD against six major currencies, found support around 106.00 and climbed to near 106.40 after Wednesday’s sharp decline. The Greenback’s movements remain tied to market expectations regarding the Federal Reserve’s (Fed) December interest rate decision, as the US economic calendar offered no major updates.
Fed Rate Cut Expectations: Traders see a 66% likelihood of a 25 basis point (bps) rate cut at the Fed’s December meeting, bringing the rate range to 4.25%-4.50%, per the CME FedWatch tool. This sentiment holds firm despite October's Personal Consumption Expenditure Price Index (PCE) data meeting expectations. The annual core PCE, the Fed's preferred inflation measure that excludes volatile food and energy prices, rose by 2.8%, up from 2.7% in September.

Technical Analysis: EUR/USD Corrects After Weekly High at 1.0600

EUR/USD retreated after failing to break above the key resistance at 1.0600 on Wednesday. The pullback appears to be a mean-reversion move, with potential support around the 20-day Exponential Moving Average (EMA) near 1.0600. Despite the short-term recovery, the broader trend remains bearish, as all short-to-long-term EMAs are sloping downward, signaling continued downside pressure.

The 14-day Relative Strength Index (RSI) rebounded from oversold territory, climbing above 40.00, indicating fading bearish momentum. However, the overall downtrend remains intact.

The November 22 low at 1.0330 is crucial for defending Euro bulls.

The 50-day EMA near 1.0750 serves as a key barrier for a potential recovery.

(This article was updated on November 28 at 08:01 GMT to clarify that EUR/USD reached a weekly high of 1.0590 on Wednesday, not a weekly low.)