EUR/USD ahead of Euro area inflation release

Aaron Hill FP Markets

ECB dovish stance

Recently, the ECB adopted more of a dovish stance.

ECB President Christine Lagarde noted that the eurozone’s economy is in a disinflationary process and added that inflation is ‘making good progress’. Lagarde added that they are confident but ‘not sufficiently confident’ and commented that additional data is needed; more will be known in June.

In addition to this, in recent newspaper interviews, we saw ECB's Yannis Stournaras and Robert Holzmann stress the point that the ECB could potentially cut rates by 100bps and be the first to cut ahead of the Fed. This is weighing on the EUR/USD currency pair.

For the ECB, markets are fully pricing in the first 25bp cut in June, with a total of nearly four rate cuts on the table (-92bps) for the year. As of writing, it is doubtful the central bank will cut rates at this month’s policy meeting on 11 April, but a dovish hold is certainly a real possibility, which, by extension, underlines a strong likelihood that the ECB may pull the trigger at June’s meeting.

Euro area inflation ahead

Given the clearer trajectory for euro area disinflation, tomorrow’s CPI inflation print for March will be one to monitor. You may recall that YoY headline inflation slowed to 2.6% in February from 2.8%, weighed down by cooling food, manufactured goods, and energy prices. Expectations heading into tomorrow’s release show both headline and core readings (YoY) down to 2.5% (from 2.6%) and 3.0% (from 3.1%), respectively.

Daily support in view at $1.0739

Technically, this remains a bearish pair. Longer-term studies have maintained a downside bias since 2008. The pullback off September 2022 lows at $0.9536, therefore, could be viewed as a sell-on-rally scenario. The bearish vibe is emphasised on the daily chart in the shape of a possible head and shoulders top formation, though the neckline is taken from the low of $1.0724 and is directed to the downside, which can limit risk-reward for any sellers basing a technical short on this pattern. You may also note that the pair is currently testing support on the daily chart from $1.0739 and will be a key level to keep an eye on heading into tomorrow’s risk event.

Given the ECB's dovish tone, any meaningful deviation to the downside will likely see the euro pulled lower against the majority of its G10 peers. Any upside surprise could underpin the euro but is likely to be short-lived.

Author

Aaron Hill

FP Markets

After completing his Bachelor’s degree in English and Creative Writing in the UK, and subsequently spending a handful of years teaching English as a foreign language teacher around Asia, Aaron was introduced to financial trading,

AUD/USD flirts with 0.7000, lowest since early August amid bullish USD

AUD/USD hits a fresh low since early August during the Asian session on Friday and looks vulnerable near 0.7000 after breaking below the 200-day SMA overnight. Against the backdrop of the hawkish Fed, a two-day rally in oil prices revives inflation fears and continues to push US bond yields to multi-year highs. Adding to this, geopolitical risks lift the US Dollar to a two-month high, overshadowing RBA rate hike bets and weighing on the pair.

USD/JPY pulls back from three-week high after failing near 159.00

USD/JPY edges lower during the Asian session on Friday, stalling its recent strong move to a three-week high of 159.00 as Japanese Yen bears turn cautious amid intervention fears. Meanwhile, the US Dollar retains a strong bullish undertone as the Fed's hawkish outlook and oil-driven inflation fears continue to push US bond yields to multi-year peaks. Furthermore, the BoJ's dovish rate hike last week might cap JPY and support spot prices.

Gold eyes worst week in a month amid hawkish Fed outlook

Gold is extending Thursday’s late rebound from the weekly low of $4,244 into Asia on Friday, but remains below $4,300. The bullion is headed for its worst week in four weeks amid a hawkish US Federal Reserve outlook and deepening global bond rout.

Crypto exchange Bitget hacked for over $350 million

Cryptocurrency exchange Bitget has been hacked for over $351 million after attackers compromised a few of its hot wallets. The hack was first flagged across several onchain tools, which initially noted over $180 million in assets moving from a few of the exchange's wallets to unidentified addresses.

Treasury announces second oversized bond buyback as it tries to put a lid on yields

The Treasury Department will buy back another $6 billion in long-term Treasuries as it continues efforts to tamp down rising yields. Treasury Secretary Scott Bessent announced this second expanded buyback on Wednesday.

BoJ Recap: Not as hawkish as expected

The Bank of Japan (BoJ) raised its short-term interest-rate target to 1.25% from 1.00% in a 7-2 vote, marking another step in the normalisation of monetary policy and widely matching what everyone has been expecting for weeks.