EUR/USD Touches Fresh Monthly Lows After CPI Data

The Euro aims to test the YTD low around 1.0806 after dropping below the 1.0900 mark. The US inflation broke the 8% threshold, a level last seen in 1981, which cements a 50 bps rate hike of the Fed at its May meeting.

The EUR/USD pair drops to fresh monthly lows and aims towards the YTD low at 1.0806, following a mixed US inflation report, which does not change the scenario of the Federal Reserve hiking rates for the second time in the year, though a 50 bps increase is expected. At the time of writing, the EUR/USD is trading at 1.0831.

Late in the New York session, the market sentiment turned sour. US equities record falls between 0.14% and 0.23%, while US T-bond yields jumped off lows, above the 2.70% threshold but well below the 2.832% daily highs. Meanwhile, the US Dollar Index (DXY) extends its weekly rally and is set to print a new YTD high above the 100 mark. At press time is up 0.31%, sitting at 100.283.

Before Wall Street opened, the US Department of Labour revealed US inflation figures for March. The Consumer Price Index (CPI), a general view of inflation, rose by 8.5%, higher than the 8.4% y/y estimates. The so-called core CPI, excluding food and energy volatile items, rose by 6.5%, lower than the 6.7% expected.

The price increase in March was mainly due to more expensive energy. For example, the price of gasoline increased by 18.3% compared with February. Otherwise, inflationary pressure tended to ease somewhat. Used car prices, for example, fell by 3.8%, after having pushed up inflation last year. Overall, goods prices outside energy and food fell by 0.4%.

Whether the inflation rate peaked in March would depend on the further development of oil and gasoline prices. If the oil price remains at the current level of around $100 per barrel of Brent and does not rise again, March probably was the high in the inflation rate.

Additionally to the abovementioned, money market futures, as shown by STIRs, depicts that investors have priced in a 94% chance of the Fed raising rates by 0.50% up to 1%.

The conflict between Russia and Ukraine also summed up the dampened market mood of late. Earlier in the North American session, the Russian President Vladimir Putin said that talks with Ukraine are at a dead end, a signal that he would carry on until the objective is achieved, as he said previously to the former.

The EUR/USD keeps treading water after breaking below the 1.0900 mark. The daily chart shows that the pair remains downward biased and is set to hit the “rising wedge” target at 1.0727, but it would find some hurdles on its way south.

The EUR/USD first support would be the YTD low at 1.0806. A breach of the latter would expose 1.0727. Given way to 1.0727, it might open the door towards the psychological 1.0700 level.