- EUR/USD rose to 1.0800 as investors became cautious ahead of key US inflation indicators and Eurozone Q1 GDP data.
- The euro area price index is on track to return to 2% as services inflation falls to 3.7%.
- US inflation data will impact the Fed's September rate cut outlook.
EUR/USD rebounded to round-level resistance at 1.0800 in European trading on Tuesday. Major currency pairs are trading higher ahead of Wednesday's release of preliminary US consumer price index (CPI) and eurozone first-quarter gross domestic product (GDP) figures for April.
US consumer inflation data will have a major impact on expectations for the Federal Reserve's interest rate cuts, which are expected to begin at its September meeting. US CPI continued to outperform expectations in the first quarter of this year due to tight labor market conditions and strong household spending. Therefore, if we continue to see hot reading announcements, investors will be keeping a close eye on this as traders will exit bets on a Fed rate cut in September. Expectations for higher inflation will also offset optimism that the Fed will cut interest rates on the back of easing labor market conditions.
Daily digest of market moves: EUR/USD maintains strength ahead of key data
- EUR/USD is showing strength near the key resistance level at 1.0800. Major currency pairs remained within trading ranges on Monday as the US dollar stabilized ahead of the release of April producer and consumer inflation figures. The US Dollar Index (DXY), which tracks the value of the US dollar against six major currencies, is trading steadily above key support at 105.00.
- The biggest event this week will be US consumer inflation data, which is expected to soften. But before that, investors will focus on producer price index (PPI) data, which will be released at 12:30pm Japan time on Tuesday. Investors expect producer inflation to remain stubbornly strong. Annual headline PPI is estimated to accelerate by 2.2% from 2.1% previously, with core numbers steadily increasing by 2.4%.
- On the other side of the Atlantic, investors are awaiting preliminary figures for the eurozone's first quarter GDP, which is expected to expand at a steady pace. Quarterly and annualized GDP is projected to grow at a steady rate of 0.3% and 0.4%, respectively. Strong GDP growth will be a source of comfort for European Central Bank (ECB) policymakers, who are expected to start lowering borrowing rates at the June board meeting.
- The services inflation rate, which was stable at 4% in the November-March period, dropped sharply to 3.7% in April, and price pressure in the euro area economy is returning to the desired 2%. Financial markets expect the ECB to cut interest rates by 70 basis points (bp) by the end of this year.
Technical analysis: EUR/USD remains elevated near 1.0800
EUR/USD is trading near the round level resistance at 1.0800. The 200-day exponential moving average (EMA) near 1.0800 is a strong barrier for euro bulls.
Nevertheless, the major currency pairs are moving towards the downward border of the symmetrical triangle pattern formed on the daily timeframe, plotted from the December 28 high around 1.1140. The upward border of the triangle pattern is marked from the October 3rd low of 1.0448. A symmetrical triangle formation indicates a sharp reduction in volatility.
The 14-period Relative Strength Index (RSI) has been hovering within the range of 40.00 to 60.00, suggesting market participants are indecisive.
economic indicators
Producer price index excluding food and energy (YoY)
The Producer Price Index (excluding food and energy), published by the Department of Labor's Bureau of Labor Statistics, measures the average change in the price of all processed goods by producers in major U.S. markets. For accurate calculations, volatile products such as food and energy are excluded. Generally, higher numbers are considered positive (or bullish) for the US dollar, while lower numbers are considered negative (or bearish).
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