Title: EUR/USD Recovers on Weak US CPI, Targets 1.1765 Amidst Bullish Momentum
Source: Original article by EconoTimes
Link: [EconoTimes – EUR/USD Recovers on Weak US CPI, Eyes 1.1765 Target Amidst Bullish Trend](http://www.econotimes.com/EUR-USD-Recovers-on-Weak-US-CPI-Eyes-11765-Target-Amidst-Bullish-Trend-1718448)
The euro has shown significant resilience against the US dollar following the release of weaker-than-expected US Consumer Price Index (CPI) data. The surprise decline in US inflation has reinvigorated bullish sentiment for the EUR/USD currency pair, driving it upward with increasing momentum. The pair climbed from intra-day lows and is currently aiming for the key resistance level near 1.1765.
This turnaround in price action suggests a renewed bullish trend, with traders and analysts focusing on favorable technical indicators and softer US economic data to support the ongoing recovery in the pair.
US CPI Figures Drive EUR/USD Higher
The US Bureau of Labor Statistics reported that inflation in the United States rose at a slower pace than forecast in the latest CPI data. This unexpected moderation in inflationary pressures prompted market participants to scale back expectations of an aggressive tightening cycle by the Federal Reserve.
With inflation seemingly beginning to stabilize, investors responded by selling the US dollar and shifting capital toward higher-yielding or safer currencies such as the euro. EUR/USD rallied in response to this sentiment shift.
Key highlights from the US CPI report:
– Headline CPI rose by 0.2% month-on-month, below market expectations of a 0.3% increase.
– Annual CPI came in at 3.0%, down from the previous reading of 3.2%.
– Core CPI, which excludes volatile food and energy prices, increased by 0.2% month-on-month, matching consensus expectations.
– Year-over-year Core CPI eased to 4.8% from the prior 5.0%.
These results suggest that inflationary pressures, while still present, may be subsiding. The moderation in core prices is crucial for the Federal Reserve, which closely monitors this component to guide future monetary policy decisions.
A Dovish Fed Boosts Euro Sentiment
With inflation easing, the Federal Reserve could opt to pause or slow the pace of upcoming interest rate hikes. Several Fed officials have already hinted at the potential for more cautious action during upcoming meetings, and the latest CPI data supports a less hawkish stance.
Market effect of dovish Fed expectations:
– US Treasury yields declined across the board, with the 10-year yield falling below 4.00%.
– The US Dollar Index (DXY), which tracks the performance of the dollar against a basket of six major currencies, slipped by more than 0.5%.
– Risk sentiment improved in financial markets, with equity indices experiencing moderate gains.
– Emerging markets and European currencies, particularly the euro, saw renewed interest.
– The reduced demand for the safe-haven US dollar prompted EUR/USD to reverse losses and push higher.
Euro Supported by Regional Economic Stability
While the US faces the potential for slowing inflation and moderating monetary tightening, the eurozone remains relatively stable. Economic data from the European bloc has shown green shoots, further supporting demand for the euro.
Key supportive fundamentals for the euro include:
– The eurozone economy has shown signs of resilience, despite challenges from elevated energy costs and supply chain disruptions.
– Germany, the bloc’s largest economy, posted better-than-expected industrial production and export figures.
– Services and manufacturing Purchasing Managers’ Indexes (PMIs) across several eurozone countries have stabilized.
– European Central Bank (ECB) policymakers remain committed to further rate hikes in the face of persistent inflation in the region.
– ECB officials have signaled a determination to bring inflation back toward the 2% target, even if it means additional tightening
Read more on EUR/USD trading.