EUR/USD: Dead cat bounce forms ahead of US inflation data

The EUR/USD price bounced back today as the market reflected on the US bond market and the relatively strong European economic data. The pair rose to 1.1915, which was 0.70% above yesterday’s low of 1.1833.

US dollar sells-off

The EUR/USD price action is mostly because of the relatively weak US dollar as US Treasury yields. The short and longer-term government bonds have been rising as investors anticipate a stronger economic recovery in the United States.

Furthermore, the US government is in the process of passing another $1.9 trillion stimulus package. Also, the government is ramping-up its vaccination process. Already, more than 50 million Americans have been vaccinated and the number of new infections has fallen.

US yield curve

The US dollar index declined by more than 0.30% today. The currency fell by 0.50% against the euro, 0.40% against sterling, 0.70% against the Swedish krona, and 0,60% against the Swiss franc.

The EUR/USD also rose as forex traders reflected on the final EU GDP numbers. According to Eurostat, the European economy contracted by 0.7% in the fourth quarter. This decline followed a major rebound in the third quarter and was mostly because of the lockdowns that happened in the final part of the month.

The data came a day ahead of an important meeting by the European Central Bank (ECB) that will start tomorrow. In it, analysts expect that the central bank will leave its pandemic response tools like interest rates unchanged. It will also reiterate that it will continue holding interest rates steady until the unemployment rate falls and inflation rises. Still, analysts will be watching for the bank’s comments on the rising yields in the US and other countries.

The EUR/USD pair will also react to the latest US inflation numbers that will come out tomorrow. These will be important numbers since they will have an impact on the yield curve. Economists expect the data to show that the headline consumer price index (CPI) rose to 1.8% in February.

EUR/USD technical outlook

The EUR/USD price has bounced back today. On the two-hour chart, the 25-period and 15-period moving averages have already made a bullish crossover. At the same time, the Average Directional Movement Index (ADX) has also started to decline. The price is also slightly below the descending trendline. Therefore, there is a possibility that this is a dead cat bounce, meaning that the pair may continue falling.