EUR/USD Forecast: Euro struggles to cling to bullish bias after soft inflation data
- EUR/USD correctly lower after posting strong gains on Monday.
- The near-term technical outlook points to a loss of bullish momentum
- The US economic calendar will offer JOLTS Job Openings data for April.
After climbing to its highest level since late April above 1.1450, EUR/USD corrects lower early Tuesday and trades near 1.1400. The pair's near-term technical outlook highlight buyers' hesitancy.
Euro PRICE Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the weakest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.32% | 0.20% | 0.10% | 0.12% | 0.56% | 0.52% | 0.18% | |
| EUR | -0.32% | -0.09% | -0.20% | -0.18% | 0.26% | 0.28% | -0.12% | |
| GBP | -0.20% | 0.09% | -0.12% | -0.07% | 0.35% | 0.37% | -0.03% | |
| JPY | -0.10% | 0.20% | 0.12% | 0.03% | 0.45% | 0.44% | 0.16% | |
| CAD | -0.12% | 0.18% | 0.07% | -0.03% | 0.39% | 0.46% | 0.06% | |
| AUD | -0.56% | -0.26% | -0.35% | -0.45% | -0.39% | 0.01% | -0.38% | |
| NZD | -0.52% | -0.28% | -0.37% | -0.44% | -0.46% | -0.01% | -0.39% | |
| CHF | -0.18% | 0.12% | 0.03% | -0.16% | -0.06% | 0.38% | 0.39% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
The broad-based selling pressure surrounding the US Dollar (USD) allowed EUR/USD to push higher on Monday. In addition to growing concerns over the United States (US) and China failing to reach a trade agreement, the disappointing data from the US weighed on the USD. The ISM Manufacturing PMI declined to 48.5 in May, showing that the business activity in the manufacturing sector continued to contract.
In the late American session on Monday, a White House spokesperson said that President Trump and Chinese President Xi Jinping were planning to meet later this week. With this headline easing market jitters, the USD held its ground and made it difficult for EUR/USD to build on Monday's gains.
Eurostat announced on Tuesday that annual inflation in the Eurozone, as measured by the change in the Harmonized Index of Consumer Prices (HICP), softened to 1.9% in May from 2.2% in April. In the same period, the core HICP rose by 2.3%, compared to the market expectation of 2.5%. Soft inflation readings seem to be causing the Euro to lose interest in the European session.
Later in the American session, the US Bureau of Labor Statistics will publish the JOLTS Job Openings data for April. The market reaction to this data is likely to be straightforward and short-lived. A significant increase in the number of job openings could support the USD, while a drop below 7 million could have the opposite impact on the currency's valuation.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart holds above 50 following a pullback, suggesting that the bullish bias remains intact but loses momentum.
A static resistance seems to have formed at 1.1450 before 1.1500 (static level, round level) and 1.1575 (April 21 high). On the downside, supports could be seen at 1.1380 (Fibonacci 23.6% retracement of the latest uptrend), 1.1320 (200-period Simple Moving Average) and 1.1270 (Fibonacci 38.2% retracement, 100-period SMA, ascending trend line).
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
