EUR/USD rose in the middle of the week's trading after official figures revealed another low mark in the annual measure of price growth but also a more meaningful glimpse of the Fed's victory in its efforts to contain the inflation demon.
- In the last two trading sessions, the EUR/USD pair gave up the gains at the beginning of the week, which affected the resistance level 1.1058.
- Losses extended to the support level 1.0941, before settling around the level of 1.0990 at the time of writing.
- The bulls are trying to look for stimulus factors to maintain the general bullish trend, which is still valid.
The European single currency - the euro - reversed previous losses to return to the psychological level of 1.10 against the dollar after the Bureau of Labor Statistics said that US inflation fell from 5% to 4.9% in April after increasing 0.4% that month. The monthly change was in line with the consensus among economists while the annual decline came in at a mark below the median of professional expectations but more importantly the developments related to core inflation.
This rose 0.4% for the second time in a row after estimates for March were revised upwards from 0.3% to 0.4% while the core rate matched economists' expectations in annual terms falling from 5.6% to 5.5% last month. Commenting on this, Karen Charbonneau, economist at CIBC Capital Markets, said: “Today's data was in line with expectations and does not change our view that the Federal Reserve has paused raising US interest rates, but the hot pace in core inflation also confirms that interest rate cuts are not offered for this year.
Core inflation excludes volatile food and energy from the basket of commodities for which prices are measured in order to provide a clearer picture of how the domestic economy is leading or not driving the more stable forms of inflation that are the main focus of central banks. At more than double the Fed's 2 percent target level, many will argue that this measure of inflation is still too high but it's not clear whether or not they will see how the 8.1 percent increase in the housing index was responsible for the "over 60" % of the overall increase” in core inflation for the month of April.
Overall, the large extent to which the rent increase explained core inflation last month is significant because it was previously flagged as a temporary side effect of the Fed's interest rate policy and something that FOMC members may overlook in setting interest rates.
In general, US interest rates were raised to 5.25% last week, but at the same time the Bank adopted a more balanced view of expectations when it said that additional increases in borrowing costs are no longer a foregone conclusion but that cuts in interest rates are unlikely to materialize anytime. almost.
With inflation still rising in many other countries and currencies including the Eurozone, it is not clear how much lower the US dollar can be expected, although the Fed's victory in its battle with inflation could make a bearish argument for earlier outperformance.
Elsewhere, gold prices in US dollars rose 10% in the three months through early May and rose more than 15% in the last six months on Wednesday. Commenting on this, Alex Kuptsikevich, Senior Market Analyst at FxPro, says: “The rise in the price of gold in light of the turmoil of regional credit institutions was more related to the liquidity crisis, and capital may gradually flow into dollar-denominated debt assets, which are currently offering impressive returns.”
Technical analysis of the euro / dollar:
The EUR/USD price has formed higher lows and higher highs connected to an uptrend channel on its hourly time frame. The price is bouncing off support and may be due to test nearby resistance levels afterwards. EUR/USD could make its way to the top of the channel at 1.1100 key psychological sign or the mid-channel area of interest at 1.1025. However, technical indicators suggest that a breakdown is possible.
The 100 SMA crosses below the 200 SMA to indicate rising bearish pressure, which could lead to a close below the channel bottom at 1.0950, a minor psychological sign. Meanwhile, Stochastic is approaching the overbought area to indicate exhaustion among buyers, so a downtrend would mean a return of selling pressure. However, the RSI has just started to rise from the oversold territory to indicate that the bullish momentum is picking up, which indicates that the uptrend may continue.
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