- The US released yet another bigger-than-expected reading on inflation.
- Investors pushed back the timing of the first Fed rate cut to September.
- Markets are almost entirely pricing in the first ECB rate cut in June.
Hot inflation figures shifted the EUR/USD forecast to bearish as the dollar gained due to a decline in rate cut expectations. Meanwhile, investors are awaiting the ECB policy meeting, during which the central bank might signal the start of rate cuts in June.
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On Wednesday, the US released yet another bigger-than-expected reading on inflation. This was the third month of high price increases, suggesting that the progress in inflation had stalled. Inflation rose by 0.4% in March, beating forecasts of a 0.3% increase.
Furthermore, the inflation report came after an upbeat jobs report, showing a robust economy. Demand remains high in the US. Therefore, the Fed must maintain high interest rates for longer. Otherwise, inflation might get stuck at levels above the central bank’s target.
After the report, investors pushed back the timing for the first rate cut to September. Additionally, investors now only expect two rate cuts in 2024 as opposed to three.
Meanwhile, the outlook for the ECB is quite different. Markets are almost entirely pricing in the first rate cut in June. Inflation in the Eurozone will likely reach the 2% target by the end of the year. At the same time, the economy has slowed down significantly compared to the US. Therefore, there is more pressure on the ECB to cut rates.
However, the ECB will likely maintain current rates at the policy meeting and signal the start of rate cuts.
EUR/USD key events today
- European Central Bank policy meeting
- US PPI report
- US unemployment claims
- US 30-y bond auction
EUR/USD technical forecast: Price falls sharply after false trendline break
On the technical side, the EUR/USD price has fallen sharply after finding strong resistance at the 1.0875 key level. The price now trades well below the 30-SMA with the RSI in the oversold region, showing massive bearish momentum.
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Before the decline, bulls attempted to break above a strong resistance trendline. However, the price quickly reversed after making a bearish, engulfing candle. Consequently, this move turned out to be a false breakout, leading to a steep decline. The price broke below the 1.0800 key support and is now testing 1.0725. However, after such a strong move, it might pull back before continuing lower.
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Saqib Iqbal
