EUR/USD Falls to 1.0700 Amid US CPI Release, Faces GDP Challenge

The EUR/USD pair dipped to 1.0700 following the release of the US Consumer Price Index (CPI), which measures changes in the price of goods and services purchased by consumers, excluding food and energy. Although the euro attempted to regain value in the early hours of Wednesday, it faced challenges after the Eurozone Gross Domestic Product (GDP) data for the fourth quarter met market expectations. This weakened the euro and subsequently undermined the EUR/USD pair. Additionally, higher-than-expected US inflation shifted market sentiment towards no interest rate adjustment by the Federal Reserve (Fed) in the upcoming March meeting, providing upward support for the US dollar against the euro.

Despite these challenges, the euro found a moment of relief with better-than-expected Economic Sentiment data from both the Eurozone and Germany on Tuesday. Investors are now awaiting preliminary GDP data scheduled for release on Wednesday, as well as a speech by Christine Lagarde, the President of the European Central Bank (ECB), on Thursday.

Meanwhile, the US Dollar Index (DXY) rebounded from intraday losses and continued to extend gains, despite downbeat US Treasury yields. Market sentiment shifted significantly, with expectations for an unchanged interest rate next month soaring to near 90%, compared to just a month ago. Investors are now considering the possibility of a rate cut by the Federal Reserve (Fed) in June.

The price of the EUR/USD pair remains around the 61.8% Fibonacci retracement level from the lower swing, presenting an opportunity to buy at a discount. Additionally, both the Stochastic and RSI indicators in the daily timeframe show oversold conditions. Traders may be inclined to purchase EUR at a discounted price and anticipate a new bullish impulse.