• German inflation continues to fall as energy costs tumble.
• FOMC and US NFPs will steer EUR / USD in the short term.

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German inflation fell by more than expected in January, official data showed today, hitting the lowest level since June 2021, as goods inflation fell sharply. Energy costs fell by 2.8%, compared to a 4.1% increase in December, while food inflation fell from 4.5% to 3.8%.

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The single currency has been under of pressure recently as expectations grow that the European Central Bank (ECB) will start to trim borrowing costs at the April 11th meeting. Euro Area interest rate probabilities currently show a 75% chance of a 25 basis point cut at the start of Q2 with a series of cuts taking the Deposit Rate down to 2.50% by the end of the year.

EUR/USD briefly dipped below 1.0800 on Tuesday but did not test a prior level of horizontal support at 1.0787. The pair are currently trading on either side of the 200-day simple moving average around 1.0840 and are likely to remain around this level ahead of this evening's FOMC meeting. Chair Powell is expected to leave US interest rates untouched but may give some more detail about when the Fed will start to cut interest rates at the post-decision press conference.

EUR/USD Daily Chart

IG retail trader data show 55.75% of traders are net-long with the ratio of traders long to short at 1.26 to 1.The number of traders net-long is 1.04% lower than yesterday and 3.74% higher than last week, while the number of traders net-short is 1.31% lower than yesterday and 6.77% lower than last week.