The EUR/USD pair has recently shown signs of a short-term recovery, trading at 1.0479 after a notable 2.20% gain, marking its largest increase since July 2023. This rebound comes as the euro has broken a descending trendline, suggesting a potential interim bottom. However, the exchange rate is expected to face resistance, with predictions indicating it will be restricted between 1.0409 and 1.05 early in the week, with a target of 1.0569 later, contingent on the outcomes of upcoming Federal Reserve and European Central Bank (ECB) meetings [9e2e9852].
The recent performance of the US dollar has been influenced by former President Trump's tariff threats, which have led to expectations of a transactional approach to tariffs. As the market anticipates the Federal Reserve to maintain current interest rates while the ECB may consider a 25 basis point cut, the dynamics between these two central banks will play a crucial role in shaping the EUR/USD exchange rate [9e2e9852].
In addition to these central bank considerations, the upcoming US Consumer Price Index (CPI) data is expected to significantly impact rate cut expectations, which could further affect the EUR/USD exchange rate. The December non-farm payrolls report indicated robust job growth, with the unemployment rate declining to 4.1% and average earnings rising by 0.3% month-over-month, reinforcing the dollar's position [36365067].
Meanwhile, German CPI inflation data is due on Friday, with expectations of flatlining at 0%. This data will be critical in assessing the economic landscape in the Eurozone and its implications for the euro's performance against the dollar [9e2e9852].
Overall, while the euro is experiencing a cautious recovery against the dollar, the interplay of economic data releases, central bank policies, and geopolitical factors will continue to influence the EUR/USD pair's trajectory in the near term [36365067].