On Tuesday (January 14th) during the European trading session, the euro/dollar rose on the eve of improved market sentiment and the release of the US Producer Price Index (PPI). Rebound from yesterday's two-year low, market sentiment has improved.

There are reports that the Trump administration may adopt a more gradual approach to trade tariffs, which has improved market sentiment. This move will enhance its negotiating ability and avoid a surge in US inflation.

Therefore, after the recent rise of the US dollar, it has taken a breath and the yield is also declining. Currently, market attention is shifting towards US PPI data and speeches by Federal Reserve policy makers, including John Williams and Jeffrey Schmidt, in order to gain new insights into the Fed's interest rate path.

It is expected that PPI will increase from 3.4% to 3.7% year-on-year. After the data is released, the US inflation data will be released tomorrow, and it is expected that the inflation rate will rise to 2.9%, which may raise concerns in the market about the rebound of inflation and further hawkish statements from the Federal Reserve.

According to the CME Federal Reserve Watch tool, the market expects a 29 basis point rate cut this year, and the first rate cut is not expected to occur until the end of the year.

The euro is rising, however, due to the difference in policy prospects between the European Central Bank and the Federal Reserve, the increase may be limited. It is expected that the European Central Bank will cut interest rates by 25 basis points at its January meeting, with a full year rate cut of approximately 100 basis points.

Yesterday, Philip Lane, Chief Economist of the European Central Bank, warned that if interest rates remain too high, inflation will be too low. His dovish remarks pushed the euro to a two-year low.

EUR/USD Technical Analysis

The euro/dollar has been declining from 1.12 since October, forming a series of lower lows and lower highs. Yesterday, the euro/dollar fell to a two-year low of 1.020 before rebounding and closing above 1.0225, which was the low point in early January.

The hammer line pattern indicates that a bullish reversal may occur at the end of the downward trend. A longer lower shadow indicates lower demand for selling at lower price points.

Buyers will seek to push the exchange rate above 1.03 and 1.0350 in order to reverse the short-term downward trend. If it rises above 1.0450, it will form a higher peak.

On the downside, sellers need to fall below 1.02 to form a lower low and further move towards 1.00.