EUR/USD: Surges as Lower than Expected US Inflation May Slow Fed Rate Hikes

Highlights

• US consumer prices rose less than expected in March
• The Federal Reserve may pause rate hikes due to cooling economy
• Traders eyeing March Fed meeting minutes further insights

Overview

The Euro is trading sharply higher against the U.S. Dollar on Wednesday after data showed that U.S. consumer prices rose less than expected in March, possibly reducing the odds that the Federal Reserve will continue to hike interest rates.

At 14:44 GMT, the EUR/USD is trading 1.0991, up 0.0078 or +0.71%. The Invesco CurrencyShares Euro Trust ETF (FXE) is trading $101.43, up $0.70 or +0.69%.

March Consumer Price Index Falls Short of Economists’ Forecast

In March, the month-over-month increase in the consumer price index was 0.1%, lower than the 0.2% increase anticipated by economists from Dow Jones.

Meanwhile, on a year-over-year basis, the CPI rose by 5%, slightly lower than the predicted 5.1% increase. This year-over-year figure is also down from the 6% jump recorded in February.

The core CPI, which excludes food and energy prices, increased by 0.4% month over month.

Inflation Report to Impact Fed’s May Rate Decision, March Meeting Minutes Awaited

The latest inflation report is likely to have an impact on the Fed’s interest rate decision in May.

The central bank had previously hinted at a potential pause on rate hikes if the economy showed signs of cooling, and Philadelphia Fed President Patrick Harker recently expressed support for a slight increase in rates that would remain elevated for some time.

Investors are hoping to glean additional insights into the Fed’s policy outlook  from the minutes of its March meeting at 18:00 GMT.

Daily EUR/USD Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed earlier today when buyers took out the previous main top at 1.0974. A trade through 1.0832 will change the main trend to down.

The Forex pair is also trading on the strong side of a long-term 50% level at 1.0943, making it support. The next resistance target is 1.1033.

Daily EUR/USD Technical Forecast

Trader reaction to 1.0943 is likely to set the tone on Wednesday. Look for an upside bias on a sustained move over this level with 1.1033 the first target.

A downside bias will develop on a sustained move under 1.0943 with 1.0832 the next key support level.