- EUR/USD recovers after the publication of Eurozone inflation data.
- Speeches by several key members of the ECB's governing council could also affect EUR/USD.
- EUR/USD enters oversold levels on the daily chart, indicating the risk of a pullback.
EUR/USD rebounds to the 1.0648 zone on Wednesday following the release of final estimates of Eurozone March inflation data. The pair has reached the daily high in this region and is now trading around 1.0640/1.0645, gaining over 0.22% on the day.
EUR/USD recovers after final CPI estimates and ECB speeches
EUR/USD recovered on Wednesday after the final reading of the Consumer Price Index (CPI) came in line with initial estimates, at 2.4% year-on-year. This figure is lower than the 2.6% annual increase in February.
The core CPI showed an increase of 2.9% annually, also in line with preliminary estimates, compared to 3.1% in February. Inter-monthly readings were also in line with expectations.
The lack of change in the final estimate may have tempered increasingly dovish interest rate expectations. A rate cut is now widely expected in June, and since lower interest rates, or the expectation thereof, tend to reduce foreign capital inflows, this has been depreciating the Euro (EUR) and putting downward pressure on the EUR. /USD.
Speeches by key ECB members throughout the day, including ECB Executive Board member Piero Cipollone, Isabel Schnabel and President Christine Lagarde herself, could also influence the pair's volatility.
The arguments in favor of an imminent interest rate cut – the interest rate on the ECB's main refinancing operations stands at 4.50% – were reinforced on Tuesday after ECB President Christine Lagarde , stated that the ECB will cut rates soon, barring any surprise, and that the ECB was closely monitoring oil prices due to tensions in the Middle East.
The pair has been in the oversold zone on the charts, increasing the chances of a bullish correction on the horizon.
Technical analysis: EUR/USD is in an oversold zone
The EUR/USD pair is firmly in a downtrend on its short and medium-term time frames, since peaking and moving to 1.1139 in December.
EUR/USD Daily Chart
The bearish thesis is supported by the fact that the pair is trading below its main moving averages: the 50, 100 and 200 day simple moving averages.
It is making lower lows and lower highs and this trend is set to continue – with one caveat.
The Relative Strength Index (RSI) momentum indicator is flashing oversold on the daily chart. However, if the RSI broke out of the oversold and rose above 30 again, it would be a sign that the pair is correcting and short-term traders should close their positions and open long positions.
As things stand, it is still possible for the pair to continue moving lower and even if a correction occurs, the dominant downtrend is likely to resume. The next key downside target for the pair is the 2023 lows at 1.0446.
Meanwhile, if a pullback occurs, a possible target could be the swing low at 1.0700.
Frequently asked questions about the ECB
What is the ECB and how does it influence the Euro?
The European Central Bank (ECB), headquartered in Frankfurt (Germany), is the reserve bank of the euro zone. The ECB sets interest rates and manages the region's monetary policy.
The ECB's main mandate is to maintain price stability, which means keeping inflation at around 2%. Its main tool to achieve this is to raise or lower interest rates. Relatively high interest rates usually translate into a stronger Euro, and vice versa.
The Governing Council of the ECB takes monetary policy decisions at meetings held eight times a year. Decisions are made by the heads of the euro area's national banks and six permanent members, including ECB President Christine Lagarde.
What is Quantitative Easing (QE) and how does it affect the Euro?
In extreme situations, the European Central Bank can launch a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets (usually government or corporate bonds) from banks and other financial institutions. The result is usually a weaker Euro.
QE is a last resort when a simple lowering of interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis of 2009-11, in 2015 when inflation remained stubbornly low, as well as during the coronavirus pandemic.
What is Quantitative Tightening (QT) and how does it affect the Euro?
Quantitative tightening (QT) is the reverse of QE. It is carried out after QE, when the economic recovery is underway and inflation begins to rise. While in QE the European Central Bank (ECB) buys government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds and stops reinvesting the maturing principal of the bonds that are already has. It is usually positive (or bullish) for the Euro.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
