- Investors reduced their expectations of rate reduction in the United States.
- Banking stocks recovered while bonds and interest rate futures partially undid their gains.
- Consumer prices in the United States rose in February, putting pressure on the Fed.
Today’s EUR/USD price analysis is slightly bearish. The dollar gained support on Wednesday as investors reduced their expectations of rate reduction in the United States. Concerns about a banking crisis subsided, and another stubbornly high inflation reading came in.
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Overnight, banking stocks recovered while bonds and interest rate futures partially undid their massive gains after three US banks failed.
Interest rate futures predict an 80% chance of a 25 basis point increase in the United States next week.
That is far more hawkish than a day ago when traders priced in a 50% chance of a pause and sharp cuts later in the year due to crisis fears. However, it is also significantly more dovish than a week ago when markets priced a similar likelihood of a 50bps raise.
Consumer prices in the United States rose in February, maintaining the pressure on the Federal Reserve to control price increases.
The Consumer Price Index rose by 0.4% in February. It rose 6.0% in the year ending in February, a slower rate than the 6.4% annualized gain in January but still far below the Fed’s 2% target.
The dollar’s move with higher stock markets and rather calm bond markets indicates that the initial worries of a contagion in the American financial system have subsided.
EUR/USD key events today
When the Producer Price Index report is released, investors will get more US inflation data. There will also be a retail sales report showing the state of consumer spending in the US.
EUR/USD technical price analysis: Bearish divergence points to weakness
The 4-hour chart shows EUR/USD trading above the 30-SMA and the RSI above 50, showing a bullish move. However, the bullish move has paused at the 1.0750 resistance level and oscillates with support at the 1.0700 support.
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At the same time, the RSI is showing weakness in the move as it has made a bearish divergence. We might see a bigger pullback to the 30-SMA support if this divergence continues. However, if bulls get stronger, we might see a break above the 1.0750 resistance.
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Saqib Iqbal
