- EUR/USD bounces back from weekly lows, lifted by higher-than-expected Eurozone inflation figures.
- European and US yields rise, supporting the euro amid expectations of ECB and Fed rate moves.
- Comments from ECB’s Holzmann and Richmond Fed’s Barkin influence market sentiment on monetary policy.
Bouncing back from its weekly lows of 1.0795, the EUR/USD demonstrates a resurgence by surpassing the 1.0800 mark, currently trading at 1.0817 with a 0.11% gain. Positive momentum followed the release of Eurozone (EU) inflation data, which outperformed expectations. Additionally, market participants are assimilating the recently disclosed Manufacturing PMI data.
The major rebounds after EU’s data exceeds forecasts
During the mid-European session, the European Union’s inflation figures were unveiled, showing a slight dip but surpassing economists’ expectations. The EU Harmonized Index of Consumer Prices (HICP) recorded a 2.6% year-on-year increase, exceeding the anticipated 2.5%. Meanwhile, the Core HICP rose by 3.1% year-on-year, surpassing the consensus of 2.9% but falling short of January’s 3.3%.
As a result, both European and US yields experienced an uptick, providing support for the EUR/USD. Investor expectations point to a potential 90 basis points of rate cuts in 2024, with the first rate cut anticipated in June. Analysts at Nordea and Commerzbank predict a gradual reduction in rates by the European Central Bank (ECB), emphasizing the looming impact of potential wage increases.
Following the data release, ECB’s Robert Holzmann emphasized the need to remain vigilant regarding inflation risks, cautioning against hasty decisions on rates. On the other side of the Atlantic, Richmond Fed President Thomas Barkin adopted a more hawkish tone, stating, “We’ll see if there are rate cuts this year.” Barkin highlighted the importance of consistent economic data and expressed a reluctance to rush into easing policy decisions.
In a separate report, S&P Global indicated a significant expansion in manufacturing activity in February, with the PMI rising from 50.7 to 52.2. However, the Institute for Supply Management (ISM) later reported a lower-than-expected Manufacturing PMI of 47.8 for February, compared to estimates of 49.5 and January’s figure of 49.1.
EUR/USD Price Analysis: Technical outlook
Over the course of the week, the EUR/USD experienced a decline below the 1.0800 level. Notably, sellers were unable to drive prices towards the February 20 low of 1.0761, a move that could have triggered a more significant pullback towards 1.0700. However, there’s a potential shift in sentiment as the Relative Strength Index (RSI) indicators are on the brink of turning bullish, paving the way for further upward movement. Should buyers successfully propel the pair above the 200-day moving average (DMA) at 1.0828, the Euro is poised to maintain strength and target the 50-DMA at 1.0871.
