- EUR/USD trims early gains and challenges 1.0500 area.
- ECB spokesmen advocated a rate hike this summer.
- The US CPI rose more than expected in April.
The initial reaction to the US CPI release sent the EUR/USD back into negative territory near the 1.0500 area on Wednesday.
EUR/USD looks supported near 1.0500
EUR/USD now alternates gains with losses around 1.0500 after US inflation figures showed headline CPI rising 8.3% annualized in April, and core CPI advancing 6.2%. Although both figures beat initial estimates, they were down a bit from previous readings, suggesting the possibility that consumer prices may have peaked in March.
The higher-than-expected CPI figures encouraged US yields to make a U-turn and are now advancing modestly along the curve.
Earlier in the session, the ECB’s Lagarde suggested that the APP could end at the beginning of the third quarter, while normalization will be gradual after the initial rate hike. Earlier comments from ECB Board members also advocated the first rate hike sometime this summer.
What to look for around EUR
EUR/USD revisits the 1.0570/80 band after the dollar’s choppy performance on Wednesday. The outlook for the pair still points to the downside, always in response to the dynamics of the dollar, geopolitical concerns and the divergence between the Fed and the ECB. Meanwhile, occasional pockets of strength in the single currency should be bolstered by speculation that the ECB could raise rates sometime in the summer, while higher German yields, elevated inflation and a decent pace of economic recovery in the region are also in favor of an improvement in the mood around the euro.
Technical levels
So far the pair is gaining 0.05% at 1.0529 and faces the next upside barrier at 1.0641 (weekly high May 5), followed by 1.0936 (weekly high Apr 21) and finally 1.1000 (round ). On the other hand, a break below 1.0470 (2022 low Apr 28) would target 1.0453 (11 Jan 2017 low) on track to 1.0340 (2017 low Jan 3, 2017).
Source: Fx Street
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