Euro Inflation, EUR/USD Analysis
- EU inflation remains stubborn, rising to 7% with the core reading dropping ever so slightly. ECB speakers likely to favor further rate hikes
- EUR/USD continues downward momentum as US debt ceiling impasse dominates sentiment. USD safe haven bid and weak Chinese data weighs on the euro
- The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library
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Euro Area Inflation Rises, Core Prints in Line
Inflation in the euro area proves sticky once again, as the finalised data for April showed a slight move higher in the headline print compared to April of last year. The core print, which removes more volatile price items like food and fuel, dropped from 5.7% to 5.6%, showing negligible improvement. However, month on month inflation was headed in the right direction, revealing 0.6% price growth versus the prior 0.9% – indicating that the rate of price increases may be slowing.
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EUR/USD traded lower after the final print although the pair has traded lower ever since pressure has racked up surrounding the US debt ceiling and fast approaching theoretical deadline of June 1st. The dollar has picked up a rather sizeable bid due to its safe-haven qualities as the deadline looms. A stronger dollar will weigh on EUR/USD until there is news of collaboration and the likelihood of a deal before the x-date.
EUR/USD 5-Minute Chart
Source: TradingView, prepared by Richard Snow
Another bearish influence for the pair includes, the hawkish Fed speak from earlier this week, in response to hotter long-run inflation expectations of US citizens revealed through the University of Michigan consumer sentiment survey. However, much weaker manufacturing data from the east coast of America proves that macroeconomic data is likely to be mixed as certain pockets in the economy like services hold up, while manufacturing appears weak.
Weak Chinese import and export data and inflation figures have also brought into question the positive economic influence that the reopening was anticipated to have on the rest of the world. China is a major trading partner to the EU and signs of recent weakness weigh on the currency. Look out for more hawkish sentiment from ECB officials throughout the day as they are likely to continue the message that further tightening remains appropriate, however, this may have little impact given the recent bearish move but may help to taper the selloff.
The pair has easily dropped below levels of support, picking up bearish momentum in the process. Support now resides at 1.0760 with resistance (prior support) at 1.0910. The RSI suggests there is still more room to the downside before the market would appear oversold.
EUR/USD Daily Chart
Source: TradingView, prepared by Richard Snow
— Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX