EUR/USD is currently trading at 1.1745 on Tuesday morning, following a continuation of losses for the second straight session. This movement is pushing the pair into the lower range of the multi-week consolidation that has characterized price action since the spring rally lost momentum. The euro is currently positioned approximately 0.42% lower against the U.S. dollar for the session, with the spot quote situated between the 9-day EMA at 1.1744, which has transitioned from support to a critical inflection point for the remainder of the week, and the upper boundary of the descending channel around 1.1780, which has consistently thwarted breakout attempts since late January. The pair reached two-day lows of 1.1730 earlier in the session before finding support from the blue ascending trendline that began at the mid-April low. Bulls are currently defending the 1.1739 horizontal floor amid rising U.S. Treasury yields, a strengthening U.S. Dollar Index, and the highest American inflation print since May 2023. The Bureau of Labor Statistics released a significant report that has captured the attention of every professional on the Street this morning. Headline CPI accelerated to 3.8% year-over-year with monthly growth of 0.6%, surpassing the 3.7% consensus and indicating the highest annual print since May 2023, a significant increase from March’s 3.3% reading. The core measure excluding food and energy increased by 0.4% month-over-month, surpassing the anticipated 0.3%, and showed a year-over-year rise of 2.8%, exceeding the consensus of 2.7%. Both figures reflect a notable reacceleration from March’s readings of 0.2% and 2.6%.
Inflation has reached its lowest point since January-February, hovering around 2.4%, and is now on an upward trend that significantly alters the Federal Reserve’s policy direction. The mechanical reaction in the rates complex was textbook — U.S. Treasury yields increased across the curve, the Dollar Index firmed off the 98.09 base toward its 98.50 resistance, and EUR/USD absorbed the impact of the rate-differential repricing as the European leg of the equation lacks a comparable inflation pulse driving its central bank toward equivalent tightness. The current structural framework is predominantly influenced by the actions of the two central banks. The Federal Reserve holds its policy rate steady at 3.75%, whereas the European Central Bank stands at 2.15%. This results in a 160-basis-point spread favoring the dollar, which has been a key fundamental driver of price movements for several months. The Fed funds futures market currently indicates an approximately 80% likelihood that the 3.75% rate will stay steady at least until October 2026, while there are probabilities exceeding 30% for a potential increase to 4.00% beginning in March 2027. The repricing stands as the most significant development for the pair, as it eliminates the prospect of a near-term Fed cut that euro bulls had partially factored into the 1.18-handle resistance. With U.S. inflation at 3.3% prior to today’s CPI and now confirmed at 3.8%, compared to eurozone inflation around 3.0%, the relative real-rate differential has expanded, thereby enhancing the appeal of dollar-denominated assets on a hedge-adjusted basis. Any incremental tightening signal from the Fed further widens that spread and adds additional pressure to the EUR/USD downside.
The macro environment that led to today’s CPI surprise started to take shape with last Friday’s nonfarm payrolls report, which revealed an addition of 115,000 jobs in April, significantly surpassing the 65,000 consensus by almost double the anticipated figure. The March figure was revised upward to 185,000 from earlier reports. While neither figure reflects the extraordinary strength seen in early 2025, both indicate that the U.S. labor market continues to demonstrate structural resilience and is functioning in a positive range, showing no signs of an imminent downturn. The combination of resilience and the current acceleration in inflation readings paves the way for a more aggressive stance from the Fed, which is precisely what euro bulls have been striving to evade. The interplay of robust job growth and increasing core prices exemplifies the situation that warrants prolonged elevated interest rates. This reasoning naturally leads to the expectation of persistent dollar strength relative to currencies from central banks facing lower inflationary pressures. The descending channel that started to take shape in late January is the key technical framework influencing all trading decisions in the pair at this moment. Within that channel, the spot quote has been exhibiting a pattern of lower highs and lower lows, with the upper boundary limiting advances around 1.1780-1.1800 and the lower boundary establishing the support layer near 1.1730-1.1745. Today’s price action marks the third attempt to break out against the upper boundary in recent weeks, and the rejection so far has been sufficiently clear to maintain the broader bearish channel. A confirmed close above the 1.1780-1.1800 zone would indicate that momentum has shifted back to the buyers, paving the way toward 1.1849 — the 12-week high noted on April 17 — and eventually targeting the upper ascending channel boundary near 1.2020. Beyond that threshold, the subsequent significant Fibonacci-aligned target is positioned at 1.2082, representing the peak value recorded since June 2021, noted on January 27 of this year.
The downside architecture is structured with remarkable accuracy. Immediate support is positioned at the 9-day EMA at 1.1744, while the lower ascending channel boundary near 1.1730 serves as the initial significant resistance level. A confirmed break below 1.1730 on a closing basis reveals the 50-day EMA at 1.1697 and initiates the descending channel breakdown that sellers have been anticipating. Below the 50-day, the next significant level is the 1.16686 confluence zone where the 50 and 200-period moving averages converge — historically recognized as one of the most crucial neutral zones across the dataset and a level that has alternated between support and resistance numerous times over the past several months. Below that, the 1.15904 key support indicates the deeper retracement area where the bullish structure established throughout April would face significant risk. The definitive downside target, should the complete support structure fail in succession, is positioned at 1.1411. This figure corresponds to the nine-month low noted on March 13, during the peak of the dollar’s previous strength phase. The momentum analysis across various timeframes effectively reflects the uncertain nature of the ongoing consolidation. The daily RSI is currently at 56, remaining above the neutral 50 line; however, it exhibits a consistent flattening pattern that suggests a potential decline in near-term bullish momentum.
The MACD on the daily chart has established a more neutral configuration, with the histogram fluctuating near the zero line. This suggests a balance in the strength of short-term moving averages, rather than indicating a definitive directional bias in either direction. The 14-day RSI of 56 on the longer-term frame indicates a constructive outlook, though not overly optimistic, for potential upside. Meanwhile, the short-term EMA remains above the longer-period EMA, maintaining a slight bullish bias. The picture sharpens uncomfortably on the shorter timeframes — the 4-hour RSI has slipped beneath the critical 50 level that typically marks the boundary between bullish and bearish momentum regimes, and the MACD on the 4-hour is decisively negative below zero, suggesting that bears are beginning to gain traction on the intraday horizon. The DXY on the 2-hour chart indicates an RSI slightly below 52, positioned in neutral territory without any divergence pattern. This suggests that the directional outcome is largely reliant on forthcoming macroeconomic data and headline developments.