Mixed Inflation Data Reveals Lack of Progress

Euro inflation, EUR/USD analysis

• EU inflation remains stubborn, rising to 7% with a slight decline in the core reading. ECB speakers are likely to favor more rate hikes
• EUR/USD continues its bearish momentum as the impasse of the US debt ceiling dominates the sentiment. Safe-haven demand in the US dollar and weak Chinese data are weighing on the EUR
• The analysis in this article is used chart patterns and key Support and resistance levels. For more information visit our comprehensive website Educational library

Inflation rose in the euro area, the core prints in line

Eurozone inflation is holding steady again, with final data for April showing a slight move higher in the headline reading compared to April last year. The core print, which removes more volatile price items such as food and fuel, eased from 5.7% to 5.6%, showing little improvement. However, month-on-month inflation was heading in the right direction, showing price growth of 0.6% versus 0.9% previously – suggesting that the rate of price rise may be slowing.

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EUR/USD traded lower after the latest reading although the pair has been trading lower since the pressure surrounding the US debt ceiling increased and rapidly approached the theoretical deadline of June 1st. The dollar picked a fairly large bid due to its safe-haven qualities as the deadline approaches. A strong dollar will affect EUR/USD until there is news of cooperation and the possibility of a deal before the specified date.

5-minute chart of EUR/USD

Source: TradingView, prepared by Richard Snow

Another bearish impact for the pair includes, the Fed’s hawkish speech earlier this week, in response to the hotter long-term inflation expectations of US citizens revealed by the University of Michigan consumer survey. However, much weaker manufacturing data from the East Coast of America proves that macroeconomic data is likely to be mixed as certain pockets of the economy such as services hold up, while manufacturing looks weak.

Weak import and export data and Chinese inflation figures also called into question the positive economic impact reopening was expected to have on the rest of the world. China is a major trading partner of the European Union and recent signs of weakness are weighing on the currency. Look for more upbeat sentiment from ECB officials throughout the day as they are likely to continue the message that further tightening is still appropriate, however, this could have little effect given the recent bearish move but could help curb the sell-off.

The pair easily fell below support levels, picking up bearish momentum in the process. Support is now at 1.0760 with resistance (previous support) at 1.0910. The RSI indicates that there is still more room to run before the market appears to be oversold.

EUR/USD daily chart

Source: TradingView, prepared by Richard Snow

– Posted by Richard Snow for DailyFX.com

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