EUR/USD erases Monday's gains, looks to close below 1.1150
- Annual core inflation in eurozone stayed unchanged at 1.3% in December.
- Business activity in US service sector expanded at a strong pace in December.
- US Dollar Index recovers steadily, looks to close near 97.
The EUR/USD pair gained more than 30 pips on Monday but failed to close above the critical 1.1200 mark and reversed its direction on Tuesday. As of writing, the pair was trading at 1.1143, losing 0.45% on a daily basis.
The data published by the Eurostat on Tuesday revealed that the core Consumer Price Index in December stayed unchanged at 1.3% on a yearly basis as expected and the CPI increased to 1.3% from 1%. Other data showed that Retail Sales in November rose 1% on a monthly basis following October's decline of -0.3% but failed to help the shared currency stay resilient against the dollar.
Commenting on the underlying details of the inflation report, "the real story is in core inflation, which has been at 1.3% for two months in a row now," said ING analysts. "This is higher than expected and could encourage hawks at the European Central Bank to seek some clawback of the monetary stimulus provided in the second half of last year.”
USD strength drags pair lower
In the second half of the day, the ISM's Non-Manufacturing PMI improved to 55 in December to point out to an expansion in the US service sector at a robust pace. This reading came in higher than the market expectation of 54.5 The US Dollar Index, which lost 0.3% on Monday, extended its rebound on the back of the upbeat data and was last up 0.38% on the day at 97.
On Wednesday, the European economic docket will feature Factory Orders data from Germany, Consumer Confidence and Economic Sentiment data from the eurozone. Later in the day, the ADP's Employment Change will be the only data release from the US that could trigger a significant market reaction.
Technical levels to watch for