EUR/USD Impacted As Investors Abandon High yielding Assets

The EUR/USD pair edged lower on Wednesday, ending the day near 1.0475 daily low. The pair pulled back from a weekly high of 1.0563 as the market’s sentiment took a turn for the worse mid-European session following the release of inflation figures. The EU CPI growth was confirmed at 7.4% YoY in April, slightly below market estimates of 7.5%, although the core inflation was upwardly revised to 3.5% from 3%.

Similarly, the UK reported that the CPI increased by 9% in the year to April, while later it was the turn of Canada, which reported its annual inflation hit 6.8%. Overheating price pressures are a drag on economic growth, already undermined by supply-chain issues and the Eastern European crisis.

Stocks reacted to CPI data negatively, with European indexes closing in the red territory and Wall Street adopting downtrend. The Dow Jones Industrial Average shed over 1,000 points intraday amid resurgent demand for safety. The USD made the most benefit, boosting its stance against most major rivals.

As for the US, the country published April Building Permits, down 3.2% MoM, and Housing Starts for the same month, which declined by 0.2%, both missing the market’s expectations and further exacerbating the dismal mood.

On Thursday, the European Central Bank will release the minutes of its latest meeting, while the EU will publish the March Current Account and Construction Output for the same month. The US will release April’s Existing Home Sales.

Technically; the EUR/USD pair seems to have completed its bullish correction and is on its way to resuming its decline. The daily chart shows that the pair retreated after testing a firmly bearish 20 SMA, while technical indicators have lost their bullish strength. The Momentum is currently consolidating around its midline, while the RSI has already resumed its decline, now at 39.

The 4-hour chart shows that the pair fell after repeatedly failing to overcome a bearish 100 SMA and is now around a mildly-bullish 20 SMA. Technical indicators have retreated from overbought levels, with the Momentum flat at around 100 and the RSI heading south at around 48, hinting at a bearish continuation in the coming sessions.