EUR/USD retreats from monthly high on ECB minutes and strong US jobs data

• EUR/USD falls to 1.0811, reversing gains after ECB minutes show reluctance to discuss rate cuts.
• Eurozone inflation shows signs of easing, yet ECB remains hesitant on monetary policy adjustments.
• US jobless claims hit a month low, hinting at a tight labor market that could stoke inflation concerns.

The Euro fell, erasing its previous gains that witnessed the shared currency hitting a month-to-date (MTD) high at 1.0888 versus the US Dollar. Since then, the EUR/USD has plunged, trading below the 200-day moving average (DMA) at around 1.0811, following the release of the European Central Bank’s last meeting minutes and strong US jobs data.

EUR/USD dips below 200-DMA on ECB minutes, solid US jobless claims

ECB January’s meeting minutes showed that policymakers remain cautious about easing monetary policy, as “There was broad consensus among members that it was premature to discuss rate cuts at the present meeting.” Nevertheless, they acknowledged the progress on inflation, turning more optimistic than at any time in years.

Policymakers added that rate cuts are not automatically warranted, even if the ECB updates March inflation projections to the downside.

Earlier, the Eurozone (EU) revealed the disinflation process continued as the Harmonized Index of Consumer Prices (HICP) came at 2.8% YoY as expected, down from 2.9%, while the Core HICP dropped from 3.4% YoY to 3.3% as foreseen. At the same time, the EU’s business activity improved slightly, led by the Services PMI, while Manufacturing activity remained at recessionary levels.

On the US front, US jobless claims dropped to their lowest level in a month. Initial Jobless Claims for the week ending February 17 decreased by 12K to 201K, below estimates of 218K, and the previous week 213K. This suggests the labor market remains tight, usually seen as a sign that might pump inflation higher.

In the meantime, business activity in the United States (US) moderated in February, according to the S&P Global report. The Services and Manufacturing PMI remained at expansionary territory, with the former printing 51.3 below estimates and January’s figures, while the latter expanded at a 51.5 pace, exceeding forecasts and last month’s 50.7. Therefore, the Composite Index dipped from 52 to 51.4.

EUR/USD Price Analysis: Technical outlook

Earlier, the EUR/USD tested the 50-day moving average (DMA) at 1.0886 but failed to break that level decisively. That, along with fundamental news from the EU and the US, exacerbated the pair’s 70-pip fall below the 1.0810 area, which could open the door to drive the exchange rate lower. Once the major drops below 1.0800, the next support emerges at the February 20 low of 1.0761, followed by the December 8 low of 1.0723. Once cleared, the next stop would be the year-to-date (YTD) low of 1.0694. On the flip side, if buyers keep the spot price above 1.0800, they could remain hopeful of reclaiming the 200-DMA.