EUR/USD Forecast: Bulls returned as US inflation remains stubbornly high

EUR/USD Current price: 1.0860

• The US Consumer Price Index rose 3.4% YoY in April, as expected.
• The US Dollar accelerated its decline as inflation figures hint at higher-for-longer interest rates.
• EUR/USD gains bullish momentum and aims to test the 1.0900 mark.

The EUR/USD pair spent the first half of the day consolidating Tuesday’s gains, reaching a fresh intraday high of 1.0836 during European trading hours. The US Dollar came under selling pressure after the release of the United States (US) Producer Price Index (PPI) on Tuesday, as wholesale inflation was higher than anticipated on a monthly basis in April. The report gained relevance ahead of the release of the Consumer Price Index (CPI) for the same month and after data showed inflationary pressures rose in the first quarter of the year.

The pair then broke higher after the US CPI came pretty much in line with the market expectations. The CPI  rose 3.4% YoY in April from 3.5% in March, while the core annual reading printed at 3.6%, easing from the previous 3.8%. On a monthly basis, the CPI was up 0.3%, according to the US Bureau of Labor Statistics (BLS), slightly below the expected 0.4%. The figures were short of worrisome but indicated the Federal Reserve (Fed) could extend its wait-and-see stance on monetary policy.

Other US data released alognside resulted discouraging, as Retail Sales stayed pat in April, while the New York Empire State Manufacturing Index fell to -15.6 in May, worse than the -10 anticipated. A couple of Fed speakers will be on the wires after Wall Street’s opening.

Meanwhile, US indexes jumped north with the news, while government bond yields turned lower, putting additional pressure on the USD.

EUR/USD short-term technical outlook

The daily chart for the EUR/USD pair shows it trades near a fresh multi-week high of 1.0868 and is poised to extend its advance. The pair is up for a third consecutive day and developing above all its moving averages. The 20 Simple Moving Average (SMA) gains upward traction below the longer ones, while the 100 SMA provides near-term support around 1.0830. Technical indicators, in the meantime, aim firmly north within positive levels, reflecting increased buying interest.

Bullish strength is more evident in the near term. The 4-hour chart shows the pair running higher above bullish moving averages, with the 20 SMA accelerating north above the longer ones. At the same time, technical indicators head firmly north. The Relative Strength Index (RSI) indicator is currently in overbought territory but without signs of upward exhaustion, leaving the door open for additional gains.

Support levels: 1.0830 1.0795 1.0750

Resistance levels: 1.0870 1.0910 1.0945