- EUR/USD recovers after release of Eurozone HICP inflation data.
- Speeches by several key ECB Governing Council members may also have an impact on EUR/USD.
- EUR/USD has entered oversold levels on the daily chart, indicating the risk of a pullback.
The EUR/USD pair rebounded by about two-tenths of a point to the mid-1.0600 range following Wednesday's release of the final estimates for the Eurozone's March inflation statistics.
EUR/USD: Final forecast, recovery after ECB speech
EUR/USD rose on Wednesday after the final value of the Harmonized Index of Consumer Prices (HICP) was in line with initial expectations of 2.4% year-on-year. This was down from 2.6% year-on-year in February.
Core HICP rose 2.9% year-on-year, up from 3.1% in February, in line with preliminary figures. The month-on-month comparison was also in line with initial expectations.
The lack of change in final forecasts may have dampened increasingly dovish expectations for interest rates. A rate cut in June is currently widely expected, and this is pushing the euro (EUR) lower and pushing down EUR/USD, as lower interest rates or expectations of them tend to reduce foreign capital inflows.
Speeches throughout the day from key members of the ECB, including ECB Director Piero Cipollone, Isabel Schnabel and President Christine Lagarde herself, could also have an impact on the pair's volatility.
Claims that a rate cut is imminent strengthened after ECB President Christine Lagarde said on Tuesday that the ECB would cut interest rates soon, barring a surprise, and said the ECB would continue to cut interest rates. The refinance operation interest rate is 4.50%). Due to tensions in the Middle East, crude oil prices are attracting attention.
The pair is in the oversold zone on the chart, increasing the likelihood of a potential upward correction.
Technical analysis: EUR/USD bear market is oversold
The EUR/USD pair has been in a solid downtrend in both short-term and medium-term time frames since peaking at 1.1139 in December.
EUR/USD daily chart
The downtrend theory is supported by the fact that the pair is trading below all major moving averages, namely the 50-day, 100-day, and 200-day Simple Moving Average (SMA).
Lower lows and lower highs are likely to continue, but there is one caveat.
The Relative Strength Index (RSI) momentum indicator is flashing oversold on the daily chart. For now, this is just a warning to short traders not to increase their positions, but if the RSI breaks out of oversold and rises above 30, it will be a sign that the pair is correcting and short traders should You'll probably end up closing the deal. Their position and open long.
As it stands, the pair could continue to fall and even if there is a correction, the still dominant downtrend could resume. The next major downside target for this pair is the 2023 low at 1.0446.
On the other hand, if the pullback develops, the potential target could be the swing low at 1.0700.
(This article was corrected on April 17, 13:40 GMT to state that EUR/USD rose on Wednesday, not Tuesday, as previously written.)
ECB FAQ
The European Central Bank (ECB), located in Frankfurt, Germany, is the reserve bank of the euro area. The ECB sets regional interest rates and controls monetary policy. The ECB's main mission is to maintain price stability, which means keeping inflation at around 2%. The main means of achieving this is by raising or lowering interest rates. Relatively high interest rates usually result in a strong euro, and vice versa. The ECB Governing Council decides monetary policy at its eight annual meetings. Decisions will be made by the heads of the euro zone national banks and the six permanent members of the ECB, including ECB President Christine Lagarde.
In extreme circumstances, the European Central Bank can enact a policy tool called quantitative easing. QE is a process in which the ECB prints euros and uses them to buy assets (usually government and corporate bonds) from banks and other financial institutions. QE usually leads to a weaker euro. Quantitative easing is a last resort when the objective of price stability cannot be achieved by simply lowering interest rates. The ECB used this system during the great financial crisis of 2009-2011, in 2015 when inflation remained stubbornly low, and during the coronavirus pandemic.
Quantitative tightening (QT) is the opposite of QE. This is done after quantitative easing, when economic recovery is underway and inflation begins to rise. In QE, the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide liquidity, but in QT, the ECB suspends additional bond purchases and waits until the maturity of bonds it already owns. Stop reinvesting principal. Usually positive (or bullish) for the euro.
