EUR/USD: Skyrockets to One-Year High on Cooling US Inflation, Hawkish ECB

Highlights

• Euro hits one-year high as US producer prices fall 0.5% in March.
• Euro strengthens due to hawkish ECB vs US Fed’s predicted 3 rate cuts.
• U.S. Consumer and Producer Inflation Heading Lower

Overview

The Euro is trading at a one-year high against the US Dollar on Thursday after U.S. producer prices unexpectedly fell in March, boosting expectations that the Federal Reserve is near the end of its rate hiking cycle.

At 14:36 GMT, the EUR/USD is trading at 1.1054, up 0.0062 or +0.57%.

PPI for Final Demand Drops 0.5% Last Month, CPI Inflation Data Shows Improvement

Last month, the producer price index (PPI) for final demand decreased by 0.5%. Over the 12-month period leading up to March, the PPI went up by 2.7%, which marks the smallest year-on-year increase since January 2021. This follows a 4.9% rise in February.

On Wednesday, the consumer price index (CPI) inflation data revealed a year-on-year increase of 5% in March, which is down from 6% in February. However, core inflation, which excludes the volatile prices of food and energy, increased slightly to 5.6% from 5.5% the previous month.

US Weekly Unemployment Claims Rise Higher Than Expected

Thursday’s data revealed that the number of Americans filing fresh claims for unemployment benefits rose more than anticipated last week. This serves as an additional indication that labor market conditions are easing as increased borrowing costs dampen demand in the economy.

Euro Boosted by Hawkish ECB

The current market trend suggests that we are returning to a low inflation era. Traders in Fed funds futures are predicting that the inflation scare is over, and the Fed’s benchmark rate will peak at 5.002% in June, up from the current 4.830%, before declining to 4.278% in December.

The Euro is receiving a boost from a relatively more hawkish European Central Bank, which is expected to continue raising rates to tackle inflation. This has resulted in a significant shift in interest differentials in favor of the euro.

As U.S. inflation falls and recession risks rise, the expectation is for three Fed interest rate cuts this year, in contrast to further hikes from the still-hawkish ECB.

Daily EUR/USD Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed when buyers took out the Feb. 2 main top at 1.1033. A trade through 1.0832 will change the main trend to down.

Daily EUR/USD Technical Forecast

Trader reaction to 1.0992 is likely to determine the direction of the EUR/USD on Thursday.

Bullish Scenario

A sustained move over 1.0992 will indicate the presence of buyers. Taking out the intraday high at 1.1068 will indicate the buying is getting stronger. This could create the upside momentum needed to challenge the March 31, 2022 main top at 1.1185.

Bearish Scenario

A sustained move under 1.0992 will signal the return of sellers. This will put the EUR/USD in a position to form a potentially bearish closing price reversal top, which could trigger the start of a 2 – 3 day correction.

For a look at all of today’s economic events, check out our economic calendar.