EUR/USD Daily Forecast – Euro Eases Higher Despite Weak Inflation Figures

EUR/USD pushed sharply higher in the early week after a joint statement from German Chancellor Angela Merkel and French President Emmanuel Macron revealed plans for new fiscal stimulus measures.

The upward momentum has subsided with the pair closing little changed on Tuesday, however, there have not been any signs of weakness as of yet.

The pair showed little reaction to inflation data out of Europe which was slightly weaker than expected. Annual inflation was reported to decline to 0.3%, down from 0.7% in the year to March, and significantly lower from 1.7% a year earlier.

Declines in EUR/USD are likely to be shallow as the new potential fiscal measures are seen as a positive. However, the plan still requires approval and some EU member states have already expressed concerns.

The current structure of the plan entails providing grants to weaker economies which are expected to be paid back gradually from the EU’s budget. The main objection that some member states have is that they’d rather issue loans rather than grants.

Technical Analysis

While the upward momentum has subsided in EUR/USD, the early week surge has set a firm bullish tone for the pair.

Further, there may have been some bears trapped as the pair traded was on the verge of a major breakdown ahead of the sharp push higher.

For this reason, buyers are likely to keep the pair well supported on dips. Up until now, pullbacks have been extremely shallow, giving bulls little opportunity to get involved at favorable prices.

For the session ahead, strong resistance is seen at 1.0988 as the level served to hold the pair lower around the middle of April and then once again in early May.

To the downside, strong support is seen at 1.0897 as the level contained a recovery rally last week. The level could provide a good entry for bulls if the pair gets there.

Bottom Line

• The upward momentum has slowed in EUR/USD with the pair closing relatively unchanged yesterday. There haven’t been any technical signs of a pullback as of yet.
• Euro inflation rose 0.3% on an annual basis although the currency pair showed a minimal reaction to the data release.