EUR/USD Forecast: US Dollar benefits from persistent inflation-related concerns
|EUR/USD Current Price: 1.0625
- The Eurozone Harmonised Index of Consumer Prices rose 8.5% YoY, higher than anticipated.
- Central banks´ officials maintain the hawkish rhetoric amid persistent price pressures.
- EUR/USD lost its bullish momentum but another leg lower, unclear in the near term.
The EUR/USD pair retreats further from its weekly peak at 1.0690 posted on Wednesday and currently trades in the 1.0620 price zone. The US Dollar partially benefits from mounting concerns about global inflationary pressures and the potential effects such would have on future monetary policy decisions.
The Euro, on the other hand, suffered from higher-than-anticipated price pressures. The Eurozone Harmonised Index of Consumer Prices (HICP) rose 8.5% YoY in February vs January’s 8.6%, although it missed the market’s expectations of 8.2%. More worrisome, the core annual reading printed at 5.6%, higher than the previous 5.3%, while also above the market expectations.
Meanwhile, United States Federal Reserve (Fed) and European Central Bank (ECB) officials maintained the hawkish rhetoric. ECB President Christine Lagarde, in a TV interview, noted that price decline is not stable and that bringing inflation down will “take some time.” Finally, she repeated that the case for a 50 basis points (bps) rate hike this month is still on the table as inflation is still too high.
Across the pond, Atlanta Fed President Raphael Bostic said that he maintains the view that the policy rate needs to rise to the 5.00%-5.25% range and remain at that level well into 2024, late Wednesday. Stock markets feel the heat, with most Asian and European indexes trading in the red. Wall Street, in the meantime, aims to open little changed after closing mixed the previous session.
Market players are also keeping an eye on government bond yields. The United States 2-year Treasury note peaked at 4.937% this week, a multi-year high, easing just modestly ahead of the American opening. The US session will bring Initial Jobless Claims for the week ended February 24 and Q4 Nonfarm Productivity and Unit Labor Costs.
EUR/USD short-term technical outlook
The daily chart for the EUR/USD pair shows that it is retreating from a bearish 20 Simple Moving Average (SMA) after challenging it for two consecutive days. At the same time, the 100 SMA keeps advancing, currently at around 1.0480. Ahead of the level, the pair has static support at 1.0515, the 50% Fibonacci retracement of the 2022 yearly decline. Finally, the Momentum indicator turned flat below its 100 line, while the Relative Strength Index (RSI) indicator turned south within negative levels, favoring a downward extension.
The near-term picture is neutral, according to the 4-hour chart. EUR/USD is meeting buyers around a bullish 20 SMA but remains below the longer ones, which head marginally lower. Technical indicators, in the meantime, head nowhere at around their midlines after retreating from near overbought readings.
Support levels: 1.0610 1.0560 1.0515
Resistance levels: 1.0695 1.0745 1.0780
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