EUR/USD recovery loses steam as focus shifts to US CPI data

EUR/USD is trading practically flat, near 1.1650 at the time of writing on Tuesday, after pulling back from the 1.1700 area. Some bullish comments by the New York Federal Reserve’s (Fed) President John Williams eased market concerns about the central bank’s independence and provided some footing to an ailing US Dollar (USD) on Monday.

Investors sold the US Dollar across the board on Monday’s early trading, following a report by the New York Times affirming that the US Government was initiating a criminal investigation against the Fed Chairman, Jerome Powell.

The action marks an escalation in an extended conflict between US President Donald Trump and Powell, which raises questions about the central bank’s independence and threatens the status of the US Dollar as a reserve currency.

Macroeconomic data is expected to return to the focus on Tuesday, as the US Bureau of Labour Statistics (BLS) releases the December US Consumer Price Index (CPI) report. Price pressures are expected to have remained well above the Fed’s 2% target, with core inflation ticking up. Barring surprises, these figures are likely to endorse the positions of the Fed's hawkish party.

Daily Digest Market Movers: Concerns about Fed's independence keep weighing on the US Dollar

• The Euro (EUR) has lost ground but remains above Friday's lows, with the US Dollar still vulnerable amid the US Government's attacks on the Fed's independence.
• Fitc Ratings warned on Monday that the Fed's independence is a key factor supporting the US AA++ sovereign rating and that they will continue monitoring the governance, including "checks and balances," in their assessment of the US ratings.
• S&P Global Ratings also said that Fed credibility is a key pillar of US sovereign creditworthiness. In a previous report, the rating agency also warned that the US rating would come under pressure if the strength of American institutions is undermined.
• New York Fed President Johnsn Williams provided some support for the US Dollar on Monday, stating that recent Fed decisions have moved “the modestly restrictive stance closer to neutral” and that he expects a healthy economy in 2026. Williams also said that he sees monetary policy well-positioned to support the stabilisation of the labour market, and that he sees no reason to cut interest rates anytime soon.
• The market is pricing a 95% chance that the Fed will keep interest rates unchanged at its January meeting, and hopes of a rate cut in March have dropped to 24% from 41% one week ago, according to data released by the CME Group's Fedwatch tool.
• The release of the US CPI report, due later on Tuesday, might shed some more light on the Fed's monetary policy path. Headline inflation is seen growing steadily at a 2.7% yearly pace, while core inflation, the most relevant from the monetary policy perspective, is seen ticking up to 2.7% YoY, from 2.6% in November.

Technical Analysis: EUR/USD holds within the descending channel

The EUR/USD pair keeps the broader bearish trend from late December highs intact. The pair failed to breach resistance at 1.1700 and returned to the mid-range of the 1.1600s.

Technical indicators are mixed on the 4-hour chart. The Moving Average Convergence Divergence (MACD) line remains above the signal line, but the histogram bars are contracting, which highlights a waning upside momentum. The Relative Strength Index (RSI) has pulled back below 50, showing a neutral-to-bearish stance.

The intraday low, at 1.1653, is likely to provide some support, ahead of Friday's low of 1.1618 and the channel's bottom, now at the 1.1600 area. To the upside, trendline resistance is now at 1.1694, a few pips below Monday's high. A confirmation above this level clears the path towards the January 6 high, at the 1.1740 area.

(The technical analysis of this story was written with the help of an AI tool.)