The euro is strengthening after declining earlier in the week. During the first trading sessions the single currency remained under pressure, but was later followed by a sharp rebound. The recovery was supported by easing geopolitical tensions in the Middle East, where signs have emerged of a slowdown in the escalation surrounding Iran. The reduction in geopolitical risks has weakened demand for safe-haven assets and allowed European currencies to partially recover their losses.

At the same time, market participants remain cautious as important inflation figures from both the eurozone and the United States are due to be released soon.

Inflation data remain a key factor shaping expectations for the future policy path of central banks. Higher inflation in the US could strengthen the dollar by reinforcing expectations that the Federal Reserve will maintain a tight monetary policy stance. Meanwhile, accelerating inflation in Europe could support the euro, as it would strengthen arguments for the European Central Bank to keep interest rates elevated for a longer period.

Overall, the current movement in major euro pairs appears largely corrective, while the next directional move will likely depend on the upcoming macroeconomic releases.

EUR/USD

The EUR/USD pair began the current trading week with a price gap, after which it tested an important support level near 1.1510. However, the sharp decline attracted buyers and the price soon returned above 1.1600. Technical analysis suggests that the pair may advance towards the 1.1700–1.1740 area, as a bullish engulfing pattern has formed on the daily timeframe.

If the price settles below 1.1600, a renewed test of the recent low at 1.1510 may follow.

Key events for EUR/USD:

• today at 09:00 (GMT+2): Germany Consumer Price Index (CPI);
  today at 12:30 (GMT+2): Germany 10-year government bond auction;
• today at 14:30 (GMT+2): US Consumer Price Index (CPI).

EUR/JPY

A renewed test of the key support level at 182.40, observed at the beginning of the week, triggered a sharp rebound and pushed the pair above 183.00. If the news flow from the eurozone remains supportive, the pair could test the next important resistance levels in the 184.30–184.70 range.

A decisive move below 183.40 would invalidate the bullish scenario.

Key events for EUR/JPY:

• today at 14:30 (GMT+2): speech by Bundesbank representative Mauderer;
• today at 01:30 (GMT+2): Japan BSI Large Manufacturing Conditions Index.

Trade over 50 forex markets 24 hours a day with FXOpen. Take advantage of low commissions, deep liquidity, and spreads from 0.0 pips (additional fees may apply). Open your FXOpen account now or learn more about trading forex with FXOpen.

This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.