Euro hits three-month high, eurozone unemployment rate unchanged

The euro has extended its gains on Tuesday.  EUR/USD is trading at 1.0523 in the North American session, up 0.36% on the day.  Earlier, the euro rose as high as 1.0559, its highest level since December 10.

The eurozone economy is sputtering but there's nothing wrong with the employment picture.  The unemployment rate remained at 6.2% for a third straight month in January, a record low.  The December reading was revised downwards from 6.3%.  Germany, the largest economy in the bloc, is yet to recover but unemployment is just 3.5%, the lowest in the eurozone. As well, the employment rate rose to 71.7%, its highest level in 20 years.

For the European Central Bank, inflation remains the key driver of rate decisions.  In February, headline inflation dipped to 2.4% and the core rate eased to 2.6%, but both readings were higher than expected. Services inflation has been sticky and fell to 3.7% from 3.9%.  Inflation remains above the ECB's target of 2% and the February numbers could complicate the ECB's plans to continue lowering rates.  The euro responded to this sentiment which huge gains of 1% on Monday.

The ECB meets next on March 6 is widely expected to lower rates by a quarter-point, which would bring the cash rate to 2.50%.  What happens after March isn't clear and which direction inflation takes will be a crucial factor in the ECB's rate path. Another headache for the ECB is US tariffs.  The Trump administration is yet to impose tariffs on EU products but has threatened to hit the bloc with 25% on European cars and other goods. EU officials have promised to retaliate with counter-tariffs and the specter of a full-blown trade war between the US and EU will damage both economies.

• EUR/USD tested resistance at 1.0483 earlier.  Above, there is resistance at 1.0576
• 1.0461 and 1.0417 are the next support lines