EUR/USD Treads Water ahead of Wednesday’s US Inflation Update

  • EURUSD
    (${instrument.percentChange}%)

EUR/USD Analysis

The pair comes from a brutal month during which it dropped to the lowest level since January 2017 (1.0470), but found reprieve after that and registered a limited rebound. Last week it managed to avoid losses and new lows, while the current one has started in a cautiously upbeat mood.

The Eurodollar has been treading water recently around the EMA100 (black line), within the area defined by the aforementioned multiyear low and the 38.2% Fibonacci of the last leg down. Given last week's rejection of the 38.2% level, danger of new lows (1.0470) still looms, although 1.0333 is distant.

Today however, the common currency finds support and trades above the EMA100 which puts immediate risk on the upside, despite broader downward bias. As such, it has the chance to push again towards 1.0635-48 area, but it does not inspire confidence for a larger rebound that would challenge 1.0727.

Inflation & Central Bank Policy

Sentiment seems at a better place today, but markets remain edgy in backdrop of growth and inflation fears, China's Covid-19 situation and the war in Ukraine. Today's economic calendar is light, but market participants brace for another inflation update from the US on Wednesday, in the form of the Consumer Price Index (CPI).

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The last data had shown an 8.5% surge in Headline CPI Inflation in March (year-over-year), which is the highest level since December 1981. Caution is needed, as markets try to find the peak in inflation and seem to want to see that.

Soaring prices have led the US Federal Reserve to its second straight interest rate hike earlier in the month and the biggest one in more than 20 years. Mr Powell may have ruled out even larger 75 basis points adjustments, but the Fed is on an aggressive and front-loaded tightening cycle.

The European central bank is far behind its US counterpart, but has been shifting towards a more hawkish direction recently. It has pointed to a Q3 conclusion of its asset purchases program (APP) and we have recently seen some officials calling for rate hikes as early as July. This could lead to Euro appreciation, but for now, the policy differential is unfavorable for the pair.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

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