- German CPI – ACT: 7.4%, EST: 7.4%
- ECB officials supportive of rate hikes post-APP.
- Growth headwind in the form of Russian oil embargo.
EURO FUNDAMENTAL BACKDROP
Earlier this morning, German inflation data (see economic calendar below) for April printed in line with forecasts at 7.4% thus continuing its incremental rise for 2022. German data often acts as a barometer for the EU region leaving the ECB comments scheduled later today open to a more hawkish tone. EUR/USD reacted positively with slight gains however, market participants remain apprehensive as we near the U.S. CPI release.
EUR/USD ECONOMIC CALENDAR
Source: DailyFX Economic Calendar
There has been much talk around U.S. inflation peaking with expectations (6%and 8.1%) lower than prior data, which has manifested itself in market pricing via U.S. 10-year Treasury yields slipping below 3% and slightly weaker dollar. Medium/long-term the Russian oil ban should not be forgotten as the negative EU growth impact this could have should cap Euro gains even if U.S. inflation starts declining.
From the EU perspective, ECB officials including VIlleroy, Muller, Elderson and Nagel have commented this morning that rate normalization should begin this summer shortly after the APP ends.
EUR/USD DAILY CHART
Chart prepared by Warren Venketas, IG
The daily EUR/USD chart has not changed much since my last update with US CPI likely to provide the much needed catalyst for price action to breakout from its consolidatory move. Sandwiched between the April swing low at 1.0471 and 1.0600, an inflation read in line or lower than forecasts could spark Euro bulls into action and pierce the 1.0600 resistance zone.
Current levels have historically (2015 and 2016) acted as a key inflection point but the significant decline in prices on the EUR/USD pair shows what could be the end of a mature move down before some sort of corrective play higher. Do not mistake this for a complete reversal as I remain in favor of the greenback but short-term there is a high chance of remedial upside.
- 20-day EMA (purple)
- 1.0064 (76.4% Fibonacci)
IG CLIENT SENTIMENT DATA: MIXED
IGCS shows retail traders are currently LONG on EUR/USD, with 74% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment however, due to recent changes in long and short positioning, we favor short-term hesitancy.
Contact and follow Warren on Twitter: @WVenketas
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.