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EURUSD Back in 1.90 Handle Post Dovish US Inflation Data

By:
Colin First
Published: May 11, 2018, 05:39 UTC

The inflation data from the US came in lesser than expected and this was a relief for the euro bulls

EURUSD Friday

EURUSD which has been on steep bearish decline for last three weeks got its first breathing space in early Asian trading session today morning as the pair moves back into 1.90 handle post a dovish US CPI data. While US inflation report from last two days managed to remain above 2% range in data released this week, it has failed to meet expectations which is viewed as the main reason for US Dollar price correction. The recent bullish rally of USD has been overstretched for some time now, US dollar has been under a lot of pressure recently. While disappointing inflation data can be viewed as major cause for correction there are also few other causes such as profit taking, the previous not-so-great data (such as the NFP), and some relief that the Iran deal is not fully falling apart halted the greenback from extending its gains.

EURUSD Recovers

In the meantime, US Treasury yields mildly retreated from Wednesday’s peak, but hold near this month highs, while the DXY holds above January’s high despite retreating, supporting the case for the current decline being just a correction. The macroeconomic calendar is very light today, with no major release in Europe except for a speech from European central bank President Draghi, US calendar shows release of preliminary May Michigan Consumer Sentiment and Expectations, Michigan inflation expectations and Import/Export price index for month of April’18. Further, the 14-day relative strength index (RSI) is turning higher from the oversold territory. So an argument could be put forward that the EUR will likely see better times ahead.

EURUSD Hourly
EURUSD Hourly

The ECB continues to send a message of cautious optimism to the markets, and this was underscored by the ECB Economic Bulletin. The report stated that the euro zone economy continues to show “solid and broad-based expansion” but did acknowledge that growth in the first quarter slowed. As for inflation, policymakers remain confident that inflation will continue to move towards the inflation target of 2 percent. However, inflation remains subdued and has not shown signs of an upward trend. The report reaffirmed that the ECB plans to maintain interest rates at current levels for an “extended period of time, and well past the horizon of the net asset purchases.” Expected support and resistance are at 1.1880 / 1.1840 and 1.1960 / 1.2000 respectively.

About the Author

Colin specializes in developing trading strategies and analyze financial instruments both technically and fundamentally. Colin holds a Bachelor of Engineering From Milwaukee University.

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