- EUR/USD has been edging lower as investors fear higher US inflation.
- The ECB is set to leave its policy unchanged and upgrade its forecasts.
- Thursday's four-hour chart is painting a mixed picture.
The big day has come – and some investors are already revealing their tensions. After several sessions of calm, the dollar has been on the rise ahead of the release of US Consumer Price Index figures for May. Has US inflation hit 5% in May? The specter of spiraling inflation has begun spooking some assets such as stocks and the dollar.
However, Treasury yields have gone the other way. Returns on 10-year bonds have dipped under 1.50%, showing markets are not fully buying the theory that price rises are coming and with it a tapering of bond-buying by the Federal Reserve. The world's most powerful central bank convenes next week and is set to remain silent until that day.
After Nonfarm Payrolls fell short of estimates, a not-so-horrible inflation figure could convince markets that the Fed is on course to sustain its $120 billion/month purchases untouched. More greenbacks mean a weaker currency.
US CPI May Preview: Inflation angst is coming
Tapering of bond buys is high on the agenda also on the other side of the pond. The European Central Bank is forecast to leave its policies unchanged on Thursday – the deposit rate at -0.50% and the total of its Pandemic Emergency Purchase Program (PEPP) at €1.85 trillion. However, there is an open question about the current pace of buying.
Back in March, the ECB announced an acceleration in purchases due to rising yields and a still-fragile economic recovery. The past three months have seen a massive vaccination campaign in the old continent and a return to normal. Is highly accommodative monetary policy still needed?
Return to a normal pace of purchases could boost the euro, but there are reasons to expect the Frankfurt-based institution to continue supporting the economy. The mix of virus variant fears and lower inflation in the eurozone – only 2% on the headline and a meager 0.9% in Core CPI – may keep ECB President Christine Lagarde and her colleagues from acting.
European Central Bank Preview: Why June's decision presents a buy the dip opportunity
Timing: The ECB announces its decision at 11:45 GMT, and if it refrains from cutting back on purchases, the euro could dip. At 12:30 GMT, the US publishes its CPI data, and Lagarde kicks off her press conference. A mix of a non-scary inflation figure and upgraded ECB growth forecasts could trigger a bounce in EUR/USD.
While these are the main events of the day and the week, it is essential to note that leaders of the G-7 convene in London and any surprising announcement from President Joe Biden and others could rock markets. However, the leaked communique suggests no market-moving declarations are on the cards.
EUR/USD Technical Analysis
Euro/dollar has dipped back below the 50 and 100 simple moving averages on the four-hour chart and momentum has flattened out. The pair trades above the 200 SMA. All in all, bears have taken back some ground, but the pair has been flat for some time now.
Some support is at the daily low of 1.2160, followed by 1.2150 and 1.21, support lines on the way up.
Resistance is at 1.22, the round number that held it down last week, followed by 1.2220, Wednesday's peak, and then by 1.2255 and 1.2266.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD holds above 1.0700 ahead of key US data
EUR/USD trades in a tight range above 1.0700 in the early European session on Friday. The US Dollar struggles to gather strength ahead of key PCE Price Index data, the Fed's preferred gauge of inflation, and helps the pair hold its ground.
USD/JPY stays above 156.00 after BoJ Governor Ueda's comments
USD/JPY holds above 156.00 after surging above this level with the initial reaction to the Bank of Japan's decision to leave the policy settings unchanged. BoJ Governor said weak Yen was not impacting prices but added that they will watch FX developments closely.
Gold price oscillates in a range as the focus remains glued to the US PCE Price Index
Gold price struggles to attract any meaningful buyers amid the emergence of fresh USD buying. Bets that the Fed will keep rates higher for longer amid sticky inflation help revive the USD demand.
Sei Price Prediction: SEI is in the zone of interest after a 10% leap
Sei price has been in recovery mode for almost ten days now, following a fall of almost 65% beginning in mid-March. While the SEI bulls continue to show strength, the uptrend could prove premature as massive bearish sentiment hovers above the altcoin’s price.
US core PCE inflation set to signal firm price pressures as markets delay Federal Reserve rate cut bets
The core PCE Price Index, which excludes volatile food and energy prices, is seen as the more influential measure of inflation in terms of Fed positioning. The index is forecast to rise 0.3% on a monthly basis in March, matching February’s increase.