The Eurozone’s prices are cooling despite higher inflation
ECB has released fresh inflation data. The decline in the euro area inflation rate halted in April. The annual inflation rate ticked up from 6.9% to 7.0% as the impact of April 2022’s precipitous decline in energy prices was removed from the year-over-year comparison.
The experts at Commerzbank predict that inflation will continue to decline in the coming months. Since food price inflationary pressures are also easing, this should have a greater impact. There has been no additional rise in underlying inflation.
Although still quite high, the inflation rate fell from 5.7% to 5.6% when these volatile categories were removed from the calculation. This is known as the yearly core HICP, which creates a lot of pressure on the European Central Bank to raise its benchmark interest rate.
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Following the release of the European Central Bank’s Bank Lending Survey, which revealed the detrimental effect of elevated interest rates on funding conditions, the EUR/USD exchange rate has been re-visited by bearish force. This also reinforced market projections of a 25 bps ECB rise this week. The pair dropped toward 1.0950.
Focus shifts towards the US data week
Concerns remain regarding the impact of the Fed’s recent choices to aggressively tighten monetary policy in an effort to moderate red-hot inflation during the last year. Last week’s GDP data for the world’s largest economy indicated continued sluggish growth.
Recent turmoil in the banking sector has led a number of analysts to forecast that the Fed will take a break after this latest hike. This has been further supported, by the recent downfall of First Republic Bank and following takeover of the majority of its holdings by JPMorgan.
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The interest rate was increased in March to its highest rate since 2007. The Fed’s terminal rate plan estimate following that meeting indicated that another quarter-point increase in hikes was anticipated in 2023. More information from the United States will be released later today and on Friday, such as job openings and payrolls data.
The door has been open to the bears
The EUR/USD daily candle chart seems to be on the top of a bullish cycle, and bears are looking to strike. From the long term standpoint, we can be looking at a support formed at the 1.05 area, as this is the start point of the last cycle.
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The bears are pushing for a few days now. However, the bulls are still looking at the recent highs around 1.109, which will act as a resistance.
In case the bulls are unable to resist the bearish pressure, we can be looking at the support from two weeks ago, around 1.085. Further downtrend would have to be caused by significant sell-off boosted by serious data.
EUR/USD 1D chart, source: tradingview.com, author’s analysis
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