Sharp reversal drags EUR/USD close to 1.1200 level
|A sudden reversal in sentiment surrounding the EUR/USD pair dragged it sharply lower within striking distance of 1.1200 handle, virtually erasing all of its Wednesday's gains.
On the economic data front, final print of the Euro-zone CPI for May matched original estimates and came-in at -0.1% indicating persistent deflationary pressure in the region. Meanwhile, the core CPI (excluding the volatile food and energy prices) also matched previous forecast and printed a y-o-y growth of 0.8%.
Next in focus would be the US headline inflation data, as measured by Consumer Price Index (CPI) for May, which is expected to have risen at a slightly slower pace of 0.3% as compared to April's 0.4% rise. The annualized rate is expected to hold steady at 1.1%.
An up-tick in inflation figures is likely to exert additional pressure on the EUR/USD pair, dragging it further below 1.1200 handle as rising prices would force the Federal Reserve to normalize policy rates, sooner rather than later.
On Wednesday, the Fed left its benchmark interest rates unchanged and lowered its forecast for Fed fund rates and 2016 GDP forecast. Policymakers still expected a 50bps of rate-hike in 2016, which limited losses for the US Dollar and restricted the EUR/USD pair to surge pass 1.1300 handle.
Technical outlook
Valeria Bednarik, Chief Analyst at FXStreet notes, "the EUR/USD pair 4 hours chart shows that the price keeps retreating from the 38.2% retracement of the May's decline, while the technical indicators turned modestly lower after failing to overcome their mid-lines. Overall, the technical bias is towards the downside, with a break below 1.1230 required to confirm further slides, towards the weekly low around 1.1190. Below this last the decline can extend down to 1.1140/60, although the downward potential seems limited by market sentiment."
"It would take an advance beyond 1.1310 to revert the negative tone, and see the pair rallying up to 1.1355, the 50% retracement of the mentioned decline."
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