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FOREX Watch: EUR/USD falls on inflation woes

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FOREX Watch: EUR/USD falls on inflation woes

The EURUSD pair edged lower Tuesday after Eurozone inflation fell to an annual rate of 0.8 percent in December. Meanwhile, the US trade deficit unexpectedly narrowed in November, lending further support to the US dollar.

The euro consolidated at 1.3617 US, bouncing from a session low of 1.3597 US. The EURUSD pair has lost nearly 1 percent since the beginning of the year, as market sentiment shifts in favour of the greenback. Technical support is ascending at 1.3535, 1.3569 and 1.3604. On the upside, resistance is ascending at 1.3686, 1.3721 and 1.3755.

The euro weakened against its European rival, the British pound, falling 9 pips to 0.8298 GBP. Technical support is ascending at 0.8255, 0.8275 and 0.8296. On the upside, resistance is located at 0.8352, 0.8373 and 0.8394.

Deflationary pressures in the euro area continue to be a major concern for investors, who are eyeballing the European Central Bank for clues about future policy. According to ECB President Mario Draghi, the central bank sees “no immediate need to act” on interest rates, which were cut to record lows last October after inflation fell to the slowest pace in four years.

The US dollar received a boost after the Commerce Department said the nation’s trade balance improved in November. Exports rose $1.7 billion to $194.9 billion, while imports fell $3.4 billion to $232.5 billion, resulting in a deficit of $34.25 billion. Economists expected the US trade deficit to have widened to $40 billion in November after hitting $39.33 billion the prior month.

The greenback’s support was somewhat limited, however, as investors look forward to the minutes of the December FOMC policy meetings, which will be released Wednesday.

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