- German annual inflation slowed sharply in March but still elevated.
- Eurozone CPI and US inflation PCE on Friday.
- EUR/USD reaffirms positive outlook, challenges ahead.
The EUR/USD climbed above 1.0900 on Thursday following Eurozone inflation data, amid a rally in Wall Street and ahead of more inflation numbers. The pair posted the highest daily close since early February, reaffirming the bullish outlook.
German Consumer Price Index (CPI) eased from 8.7% YoY in February to 7.4% in March, above 7.3% of market expectations. The rate reached its lowest level since August 2022 due to natural gas cost tumbling compared to a year ago when prices surged after Russia invaded Ukraine. Despite the slowdown, German inflation remains above European Central Bank’s (ECB) target. Spain reported that the CPI dropped from 6% YoY to 3.3%, but core inflation slowed marginally, showing price pressures are still out there.
The German 10-year bund yield jumped after the data to 2.35%, the highest level in a week, boosting the Euro across the board. On American hours, the Euro trimmed gains and then, EUR/USD stabilized around 1.0900.
More inflation data will be released on Friday, with the Eurozone preliminary March Harmonized CPI expected to show a decline in the annual rate from 8.5% to 7.1%, mostly due to base effects.
Some Federal Reserve officials hit the wires on Thursday. The tone of the messages is that interest rates could rise further if inflation persists, and rate cuts for later in the year are off the table for the moment. Markets still see some possibilities for rate cuts, assuming a hard landing of the economy ahead, but as the banking crisis eases, the potential impact on activity economy fades.
The US Core Personal Consumption Expenditure Price Index will be released on Friday. That inflation indicator, closely watched by the Fed, will be critical for expectations about the path of the Fed’s policy.
EUR/USD short-term technical outlook
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The EUR/USD is challenging the 1.0900 area again after retreating from the resistance area of 1.0925/30. While above 1.0900, another test of the recent top seems likely. Above, there is not much resistance until 1.0990.
The 4-hour chart shows EUR/USD firm above key moving averages, with the 20-period SMA at 1.0840. The positive momentum will remain strong while above 1.0840/50. However, the RSI is at 70 (overbought), signalling some consolidation could be ahead.
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