The Eurozone inflation report for March brought some temporary relief to the EURUSD pair. The annual inflation rate dipped to 2.4%, matching market expectations and easing concerns about aggressive rate hikes from the European Central Bank (ECB). This slowdown aligns with ECB President Lagarde’s dovish stance, potentially paving the way for an interest rate cut as soon as June, which could result in a short-lived relief for the Euro.
However, the US Federal Reserve remains a major headwind for the pair. Fed Chair Powell’s comments yesterday, emphasizing the need for more data on falling inflation before considering rate cuts, surprised markets who were anticipating a more dovish tone. This has strengthened the US Dollar across the board, pressuring the Euro.
Technical Analysis
The 4-hour shows that the EURUSD pair is currently trading slightly higher at 1.06442 after gaining over 0.2% following the Eurozone inflation report. The price action recently broke above the 20-SMA (green line) but remains below the 50-SMA (blue line) and the 100-SMA (orange line). The 20-SMA also recently dipped below the 50-SMA and 100-SMA, indicating a potential bearish trend.
With the RSI (41.14) firmly trading below the 50.00 level, sustained Euro weakening would likely offer short-term trading opportunities towards the 1.05998 support level in the near term. A sustained break below the 1.05998 support level could expose the major support zone of 1.05166.
However, sustained buying pressure could leave the 1.07236 resistance level as the initial level of interest in the near term. A break above the initial resistance level, with significant volume, could confirm the bullish momentum, likely bringing the 1.08228 resistance level into play.
Summary
The Euro found temporary support from the lower Eurozone inflation data, but the overall technical picture remains bearish. The US Dollar is likely to stay strong in the near term due to hawkish comments from Fed Chair Powell. Traders should monitor the price action around the key support and resistance levels mentioned above. A break above 1.07236 could signal a trend reversal, while a break below 1.05998 could lead to further Euro weakness.
Sources: TradingView, Trading Economics, Federal Reserve, Seeking Alpha, EUROSTAT.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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