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11.01 – Euro drops following US CPI figures exceeding estimates

The Euro (EUR) plunged in early trading on Thursday during the North American session after an inflation report from the United States (US) was higher than foreseen, which could deter the US Federal Reserve (Fed) from cutting rates soon. The EUR/USD trades at 1.0952, down 0.23%. The US Bureau of Labor Statistics (BLS) revealed that inflation in December exceeded estimates as the Consumer Price Index (CPI) rose by 3.4% YoY, above forecasts and November’s 3.1%. Excluding volatile items like food and energy, advanced 3.9% YoY, lower than the 4% achieved in the previous reading but higher than the 3.8% projected by the consensus. At the same time, the BLS revealed that unemployment claims for the week ending January 6 increased by 202K, less than the previous week’s 203K and forecasts of 210K.

Following the data release, money market futures trimmed some of the chances for a quarter of a percentage rate cut by the Fed at the March meeting, with odds standing at 69%. The US 10-year Treasury note is yielding 4.045%, gaining two basis points, while the Greenback, as portrayed by the US Dollar Index (DXY), advances toward 102.52, gaining 0.20%. Across the pond, the economic docket revealed that Industrial Production in Spain slowed while in Italy plummeted sharply, painting a gloomy economic outlook in the Eurozone (EU). Meanwhile, European Central Bank (ECB) officials continued to cross the newswires, with Vujcic saying that risks for inflation look balanced. He added that if prices fall faster than expected, the ECB could move earlier on rates, on 25 basis points decrements. Ahead of the week, the US economic docket will feature inflation on the producer side on Friday. In the EU, France inflation in December is expected to rise to 3.7% YoY. The daily chart portrays the major as neutral to upward biased, but if sellers push prices toward the 1.0900 figure, that could pave the way for further losses. Earlier, EUR/USD buyers failed to crack the 1.1000 figure, exacerbating a retracement towards a daily low of 1.0931, but the pair has recovered some ground toward current exchange rates. Key resistance levels on the upside lie at 1.0998, 1.1000 and the January 2 daily high at 1.1038. Contrarily, the first support level is seen at 1.0950, followed by 1.0931 and the 1.0900 mark.