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EUR/USD trades with losses on Tuesday, even though the latest inflation in the United States was benign, hinting that the Federal Reserve could indeed reduce interest rates as priced in by the financial markets. At the time of writing, the pair trades at 1.1642, down by over 0.20%.

Euro weakens despite benign US inflation, as firm jobs data and Fed rhetoric boost the Dollar
 

The Greenback recovered some ground after the December Consumer Price Index (CPI) in the US was mostly aligned with estimates, with underlying inflation ticking a tenth lower on the annual print. This would justify rate cuts by the Federal Reserve, but last Friday’s solid Nonfarm Payrolls report, the tick lower in the Unemployment Rate, and a goodish ADP Employment Change 4-week average report, indicates a resilient labor market.

Last year, the three rate cuts by the Fed were triggered by labor market weakness even though inflation remains high. Now, the labor market remains solid and prices, while closer to 3% than 2%, remain stable.

The money market had trimmed the odds for a 25-basis point rate cut by the Fed, as revealed by the Interest Rate Probability tool by Prime Market Terminal. Traders see the Fed funds rate finishing at 3.23% so far, implying 52 basis points of cuts.
 

Source: Prime Market Terminal
 

After the US CPI report, US President Donald Trump slammed the Fed Chair Jerome Powell once more. He posted on his Truth Social Network, “Inflation numbers for the USA. That means that Jerome “Too Late” Powell should cut interest rates, MEANINGFULLY!!! If he doesn’t, he will just continue to be, “TOO LATE!” ALSO OUT, GREAT GROWTH NUMBERS. Thank you, MISTER TARIFF! President DJT.”

Earlier, the ST Louis Fed President, Alberto Musalem, was neutral hawkish, said that the economy is likely to grow at or above its potential in 2026.

On Wednesday, the Eurozone economic docket will feature a speech by the European Central Bank Vice-President Luis De Guindos. In the US, traders’ focus will be on releases of the Producer Price Index (PPI) for October and November, Retail Sales for November and a flurry of Fed officials.

Daily digest market movers: Euro tumbles amid soft US inflation report
 

• US CPI came in largely aligned with forecasts. Headline CPI was unchanged at 0.3% MoM, matching November’s pace, while annual inflation held steady at 2.7%, exactly as projected. Core CPI showed signs of modest easing, slowing to 0.2% MoM from 0.3%, as expected. On a yearly basis, core inflation stood at 2.6%, unchanged from November but slightly below market estimates, pointing to gradual disinflation.
• Meanwhile jobs market data was solid. ADP’s Employment Change four-week average ticked higher, improving from 11K to 11.75K, suggesting a mild stabilization in private-sector hiring momentum.
• October’s New Home Sales edged 0.1% lower MoM slipping from 738K to 737K. However, U.S. Department of Commerce data showed a sharp increase on an annual basis, suggesting that easing mortgage rates and lower home prices are beginning to support to on the housing market.

Technical outlook: EUR/USD slumps as sellers pile in, pushing the pair below 1.1650
 

EUR/USD continues to consolidate after failing to clear key resistance at the 20-day Simple Moving Average (SMA) at 1.1716, which sent the pair sliding past 1.1700 and the 1.1650 figure. Momentum as measured by the Relative Strength Index (RSI) shows that sellers are in charge, as the RSI stills below its neutral level.

That said, if EUR/USD slides below 1.1600, this could expose the 200-day SMA at 1.1575. A breach of the latter clears the way to challenge 1.1500 and the August 1 low of 1.1391. On the other hand, if buyers regain the 50 and 100-day SMAs, each at 1.1647 and 1.1663, then up next lies 1.1700. If surpassed, traders could target the 20-day SMA at 1.1716.
 

EUR/USD daily chart

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