Don't Write off Euro-Dollar's Recovery Just Yet
- Written by: Gary Howes
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Image © Adobe Images
The Euro's recent rebound against the Dollar is facing a key technical test following the release of data that showed inflation in the U.S. will remain elevated for some time.
The Euro to Dollar exchange rate retreated back to the 1.09 mark and into a layer of notable support after official data showed headline CPI rose by 3.2% year-on-year in February, up on January's surprisingly strong 3.1% print and above consensus expectations for 3.1%.
The odds of a June rate cut at the Federal Reserve eased after core inflation - which strips out energy and food - remained unchanged at 0.4% month-on-month in February, surpassing expectations for a slide to 0.3%.
'Supercore' inflation (core services minus housing) remained unchanged at 4.3%y/y for the second month running.
"For now, EUR/USD tests support at 1.0900 – 1.0920 as traders continue to take profits after the rebound from February lows," says Ruta Prieskienyte, FX Strategist at Convera.
The chart above from Convera shows that the Euro-Dollar tends to struggle at levels above 1.0950, and the U.S. inflation print could provide the fundamental narrative to underpin the technical constraints facing the pair near current levels.
Fawad Razaqzada, Market Analyst at City Index, says EUR/USD is testing a notable support area starting around 1.0920 to around 1.0885.
This area is shaded in light blue on the chart below and marks a prior resistance range:
Image courtesy of City Index.
"The underlying trend is clearly bullish insofar as the short-term is concerned, with price above both the 21-day exponential and 200-day simple moving averages," says Razaqzada.
Of course, any short-term bullish thesis rests with the aforementioned support line holding and not giving way.
If the support holds and the Euro musters enough buying interest, a test of 1.10 is possible.
"There's also a short-term bullish trend line established that goes back to February. If the recent bullish trend continues then 1.1000 could be the next upside objective, followed by the December’s high of 1.1140 thereafter," says Razaqzada.
