Alex Kuptsikevich, senior financial analyst at FxPro EUR/USD pair, after marking a historic bottom in early October, has more than lined the earth 1.1250 during European pawn on Wednesday. US dollar sinks after less-than-expected inflation prints for April. This positive trend builds on the progress seen on Tuesday. The economist’s move is an indication of shifting sentiment in the development finance market. More importantly, it shows the extreme bullish bias that has permeated the last several trading days.
EUR/USD’s 14-period Relative Strength Index (RSI) poses an impressive bounce off a 40.00 reading. This recent leap can only be interpreted as further evidence that bullish momentum is far from dead. The duo is currently well above its 20-day Exponential Moving Average (EMA), located at roughly 1.1220. This highly unusual movement is a clear bullish reversal signal. These technical indicators indicate that market participants are becoming more bullish on the Euro’s strength versus the Dollar.
US Inflation Data Impacts Currency Markets
Consumer Price Index (CPI) data for April reflected a headline increase of 2.3%. This was the lowest level in more than four years and was a major contributor to the recent US Dollar weakness. In the wake of this news, US President Donald Trump continued to berate the Federal Reserve, calling on them to take action and lower interest rates.
“No Inflation, and Prices of Gasoline, Energy, Groceries, and practically everything else, are DOWN!!! THE FED must lower the RATE, like Europe and China have done,” – US President Donald Trump
Those soft inflation figures have made talk of future rate cuts from the Federal Reserve even more serious discussions. Widening trade deficits From this backdrop, one might expect traders to cut their expectations for a first rate cut ahead of the September policy meeting. The economic picture keeps changing, as more details become available.
ECB’s Perspective on Inflation and Future Rate Cuts
The European Central Bank (ECB) has recently joined the debate on the unusual monetary policy environment. Francois Villeroy de Galhau, the Governor of the Bank of France, pointed to the risk of Trump’s expected wave of protectionism. He cautioned that these measures threaten to reheat inflation in the US, while Europe will be less susceptible to such pressures.
“We don’t see inflation picking up. The Trump administration’s protectionism will lead to a restart of inflation in the US, but not in Europe, which will likely allow for another rate cut by the summer,” – ECB policymaker and Governor of the Bank of France Francois Villeroy de Galhau
If taken, this view would mean that European policymakers are more constrained in their ability to raise interest rates. This new maneuverability would change the game between the Euro and the Dollar, but wouldn’t trigger any sudden inflationary dangers.
Looking Ahead: Key Economic Indicators
As market participants continue to digest this new information, they are especially tuned in to a steady stream of economic indicators. This week is packed with other major data releases we’ll be watching closely. Then get ready for April’s Retail Sales and PPI numbers, due out this Thursday!
Moreover, Fed Chair Jerome Powell’s speech at the Thomas Laubach Research Conference in Washington is anticipated to provide fresh insights into monetary policy direction. Investors are hungry for any hawkish comments, including interest rate increases and inflation expectations, which could add even more fuel to the EUR/USD fire.
As we finish today’s quiet session with EUR/USD up 0.35% vs the USD, futures traders are closely watching resistance at 1.1425, the April 28 high. On the flip side, support for EUR/USD bulls can be found near the March 11 high at 1.0950.