The US dollar was affected by the release of US inflation data in the New York session yesterday.
The consumer price index (CPI) data for January showed an increase in inflation to 3.0% compared to forecasts for a stable 2.9%.
As soon as the data was released, the US dollar continued to strengthen following indications that it was becoming more difficult for the Federal Reserve (Fed) to continue cutting interest rates.
However, this situation did not last long as the US dollar was seen weakening again, even more significantly than the strengthening towards the end of the New York session.
If we examine the movement on the EUR/USD currency pair chart, the price, which was slowly hovering at 1.03800, then plunged 60 pips to around 1.03200 as soon as the CPI data was released.
However, the price, which was seen testing the Moving Average 50 (MA50) support line on the 1-hour chart, bounced back, indicating a bullish move.
The price bounced higher than the previous drop, which was around 100 pips above the focus level at 1.04000.
Reaching a height of around 1.04300, the price retreated back below the 1.04000 zone before slowing down to resume trading at the opening of the Asian session this Thursday morning.
With the surge that has been displayed, the price has the potential to continue rising higher if it manages to hold above the 1.04000 zone.
Overcoming yesterday's high, the price is expected to head towards the next target at the 1.05000 resistance zone.
However, if the US dollar strengthens again, investors should be prepared to see a price drop like yesterday.
The nearest target is to head towards the support level at 1.03000, which was the focus of the price in trading earlier this week.
If the price still plunges lower below that level, the support zone from last January, which was 1.02000, will be waiting to be tested again.
