EUR/USD bulls stick with it but under pressure in the bear's lair
|- EUR/USD bears sinking in their teeth at daily support.
- US dollar remains on firm grounds with eyes on US inflation.
At 0.6934, EUR/USD is flat on the day so far in an environment of positive stocks in APAC despite the sea of red into the close on Wall Street. The euro was pressured as a consequence of a resilient US dollar and the market's conclusion that the inflation data for April was hot enough to panic, fuelling a bid on the greenback.
It was a mixed report in that the Consumer Price Index climbed 8.3%, higher than the 8.1% estimate but below the 8.5% in the prior month. The index rose just 0.3% last month, the smallest gain since last August, the Labor Department said on Wednesday, versus the 1.2% MoM surge in the CPI in March, the most significant advance since September 2005. However, ''the fact that the CPI is driven by rents and services implies that price pressures are entrenched and may manifest in upward pressure on wages too,'' analysts at TD Securities argued.
As a consequence, the Dow Jones Industrial Average was 1% lower at 31,834.11, wiping gains achieved earlier in the day. The S&P 500 slid 1.7% to 3,935.18. The Nasdaq Composite tumbled 3.2% at 11,364.24. The US 10-year yield slumped by 7.4 basis points to 2.92% but that did not prevent the greenback from rallying.
''The positive surprise in core prices will not be favourable for currencies not named the US dollar. We think the market is far too premature in reducing the Fed's optionality set for tightening. This should leave the USD resilient for now,'' analysts at TD Securities argued.
The US dollar index, DXY, ended towards the session highs of 104.105. It is currently bid and trading at 104.01 which is weighing on the euro as investors assess how aggressive the Fed will need to be. Expectations are completely priced in for another hike of at least 50 basis points at the central bank's June meeting, according to CME's FedWatch Tool.
For the week ahead, investors will get another look at inflation data on Thursday in the form of the Producer Price Index for April, with expectations of a monthly increase of 0.5% versus the 1.4% jump in March. On an annual basis, expectations are for a jump of 10.7% compared with the 11.2% surge the prior month.
ECB about to hike?
Meanwhile, a number of European Central Bank speakers including ECB President Christine Lagarde spoke. The communication was decidedly hawkish, as analysts at ANZ Bank explained: ''Lagarde said that a first rate hike could come just weeks after the ECB finishes its QE program in June. This signals the growing possibility of a July hike from the central bank. With the final April CPI data for Germany confirming a 7.8% YoY rise in prices, the hawkish members of the ECB governing council are likely to keep pushing for an earlier tightening in monetary policy.''
EUR/USD technical analysis
As per the pre-Asian session analysis, EUR/USD Price Analysis: Bears lurking near to cycle lows, breakout on the cards? the price is testing critical daily and 4-hour support. A break here could lead to lower levels for longer as per the daily chart:
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