Euro Gains Following German CPI

The euro rises 1%, earlier during the North American session. After reaching 1.0224 last week, the euro bounces back against the US dollar on Monday. As markets are driven by political unrest in Italy, Austria, and Canada, President-elect Trump seems to be considering imposing universal US tariffs. The EUR/USD pair is up +0.71, trading at 1.038 at the time of writing.

This Monday, markets are analyzing preliminary German inflation data for December as well as the European PMI. With the president-elect considering imposing universal taxes on just essential goods, the euro is holding onto significant gains ahead of the US trading session, rising 1% to above 1.0400 at the time of writing on Monday. The December Purchasing Managers Index (PMI) releases, which show that data from Spain, Italy, France, Germany, and the larger Eurozone has recovered from previous month readings, further support the encouraging trend.

The political factors around the world is also causing markets to push the euro higher. According to Bloomberg News, Canadian Prime Minister Justin Trudeau is expected to step down this week, and Italian Prime Minister Giorgia Meloni disrupted the unity of Europe by traveling to Mar-a-Lago to meet with President-elect Donald Trump. Meanwhile, President-elect denied a news story about considering to impose a single, uniform tariff on essential imports rather than a series of separate, dispersed ones.

Regarding the economic calendar, markets are preparing for the first regular trading week of the year following the new year holidays. Financial markets are anticipated to resume operating at their typical level as traders return to their trading desks. Both Europe’s and the US’s calendars are extremely full, with this week’s major event being the release of the US Nonfarm Payrolls on Friday.

The Spanish HCOB PMI for the Services sector came in at 57.3, above the 54.1 expected and the 53.1 previous reading. The Italian HCOB Services PMI recovered from contraction and came in at 50.7, above the 50.0 estimate and better than the previous 49.2 reading. France’s HCOB Services PMI rebounded to 49.3, coming from 48.2 the previous month and beating the estimate of 48.2.

Germany’s HCOB Services PMI reading came in at 51.6, above the estimate and previous reading of 51.4. The German Consumer Price Index (CPI) has been released. The December preliminary reading ticked up by 0.7% against the expected 0.4% on a monthly basis compared to the -0.2% in the prior month. The preliminary CPI rose to 2.9% against the previous 2.4% year-over-year.


Technical Factors: Euro rallies biggest in a day

Following a crash to 1.0224 last week due to traders’ hasty addition of short Euro bets that were unwinded prior to Christmas, EUR/USD is seeing a knee-jerk reaction. The rebound is now close to 1.0448 with the oversold Relative Strength Index (RSI). Either traders in the US session will take advantage of the opportunity to add more short EUR/USD positions, or they may push the Euro higher, maybe reaching 1.0500.

On the plus side, the first level to look out for is the 1.04 large figure. The crucial milestone at 1.0448, the bottom of October 3, 2023, comes next. The 55-day Simple Moving Average (SMA) at 1.0565 enters the picture after that level is crossed.

The first support to be retested on the downside is the two-year low that is now at 1.0224. A further decline would result in a new two-year low at the crucial level of 1.02. With 1.0100 as the final guy standing before that enchanted 1.00 level, that would create the space to move toward parity.