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US inflation eased by less than expected in April, with an 8.3% YoY reading. The latest US data dragged Wall Street futures reflecting the market’s fears. The EUR/USD pair has resumed its decline and approaches the year low at 1.0470.
The EUR/USD pair fell sharply and trades around 1.0520 following the release of US inflation figures. The CPI data came in at 8.3% YoY, slightly below the previous 8.5%, but higher than 8.1% estimates.
The core reading, which excludes volatile food and energy prices, resulted at 6.2% above the market’s forecast. The data reflects that the US economy is heading toward stagflation, as inflation remains high and growth slows down.
Earlier on Wednesday, Germany released the final readings of its April inflation figures. The Consumer Price Index was confirmed at 7.4% YoY, a multi-decade high, and also poising trouble for the largest EU economy. Following the release, stocks took a turn for the worst, with US indexes set to open in the red.
US Treasury bond yields edged higher, with the 10-year Treasury note currently yielding 3.03%. Risk aversion is back in and would likely maintain the US dollar on the winning side.
The European Central Bank has decided to catch up with the rest of the major central banks. ECB’s Christine Lagarde hinted the central bank could hike rates as soon as July as inflation continues to rise. ECB’s Governor Madis Muller noted that the stimulus program known as APP should end in July, while a hike must not be far behind.
Another Governing Council Member, Francois Villeroy, added that the central bank would start hiking this summer. Technically; the daily chart for the EUR/USD shows that the risk remains on the downside, as the pair turned red and develops far below bearish moving averages.
Technical indicators lack directional strength but remain near oversold readings and without signs of downward exhaustion. Technical readings in the 4-hour chart hint at further declines, as the pair broke below its 20 SMA with a long candle, usually indicating higher volume, as technical indicators turned firmly lower, although with the Momentum still holding within neutral levels.
The pair has space to extend its decline toward the year low at 1.0470, while a break below the latter will open the door for a test of a multi-year low of 1.0339. Support levels: 1.0470 1.0420 1.0365 Resistance levels: 1.0540 1.0585 1.0630.
