EUR/USD Forecast: Easing US inflation provides a welcomed boost
|EUR/USD Current Price: 1.0813
- The US Consumer Price Index rose by 0.1% MoM in May, below the 0.2% expected.
- Odds for a Federal Reserve pause in monetary tightening increased after inflation figures.
- EUR/USD struggles to extend gains but bulls will likely retain control.
The EUR/USD pair peaked at 1.0810 during European trading hours, as the US Dollar traded with a soft tone ahead of the release of the United States (US) Consumer Price Index (CPI). The pair benefited from better-than-anticipated German data and hopes US inflation had continued to soften in May.
Regarding German macroeconomic figures, the country confirmed the May Harmonized Index of Consumer Prices (HICP) rate at 6.3% YoY. Additionally, the ZEW Survey showed that Economic Sentiment improved in the country to -8.5 in June, although the Eurozone indicator fell by more than anticipated to -10. On a negative note, German’s assessment of the current situation collapsed from the previous -34.8 to -56.5.
At the same time, Asian shares advanced, backing the high-yielding Euro, while US Treasury yields came under pressure undermining demand for the USD.
The EUR/USD pair extended its advance with the release of US CPI figures. According to the Bureau of Labor Statistics, the inflation rate was 0.1% MoM in May and 4% from a year earlier, both slightly below the market’s expectations. The core annual CPI rose by 5.3%, as expected, easing from the previous 5.5%.
The figures fueled speculation the Federal Reserve (Fed) will refrain from hiking rates when it concludes its meeting this Wednesday, with the CME FedWatch Tool showing odds for a no-change at 79.2%. Additionally, the chance of a 25 bps rate hike in July remains above 50%. Overall, inflation figures were encouraging but insufficient to confirm the end of the monetary tightening cycle.
EUR/USD short-term technical outlook
The EUR/USD pair holds on to gains and trades at around 1.0810, with the risk skewing to the upside. The daily chart shows that the pair met buyers around a directionless 20 Simple Moving Average (SMA) but struggles to advance beyond an also flat 100 SMA. Technical indicators, however, extend their advances into positive territory, reflecting increased buying interest.
The near-term picture also favors a bullish continuation, as the pair has steadily bounced from a bullish 20 SMA, which extends its advance above a directionless 100 SMA. The 200 SMA, in the meantime, provides dynamic resistance at around 1.0840. Finally, technical indicators remain well in positive territory, although their upward strength is uneven. The Relative Strength Index (RSI) is partially losing momentum as it approaches overbought readings, but other than that, there are no signs of bullish exhaustion.
Support levels: 1.0785 1.0745 1.0710
Resistance levels: 1.0850 1.0890 1.0930
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