On Wednesday, EUR/USD reached a new monthly high near 1.0870 during New York trading hours. The major currency pair saw gains as the United States Consumer Price Index eased, matching expectations, and April's Retail Sales data showed no growth.
The US economy's weaker-than-expected inflation numbers and flat Retail Sales data are causing problems for the US Dollar and bond yields. The US Dollar Index which tracks the Dollar against six major currencies, has dropped to its lowest level in over a month, around 104.50.
The 10-year US Treasury yields have dipped to 4.36%, reflecting weak economic data that could increase speculation about the Fed lowering interest rates starting in September. Additionally, this development may boost the confidence of Fed policymakers, who have worried that the disinflation process has been slower than anticipated, as recent reports showed higher-than-expected figures.
Inflation data drives market sentiment
The EUR/USD climbs to 1.0870, driven by bullish market sentiment following a dip in US consumer inflation and steady Retail Sales. The S&P 500 futures have seen remarkable gains in the early American session, highlighting a significant boost in investors' risk appetite.
The annual headline CPI for the United States eased as anticipated to 3.4%, down from 3.5% in March. During the same time, core inflation, which excludes volatile food and energy prices, met expectations at 3.6%, marking a slowdown from the previous reading of 3.8%.
In the most recent CPI report, the monthly headline CPI climbed at a reduced pace of 0.3%, lower than the prior reading of 0.4% and the consensus. Similarly, the core CPI, aligning with estimates, also showed a 0.3% increase, which was a step down from the previous 0.4%.
The report highlighted that lower prices for utility gas services and used cars and trucks primarily drove this slowdown in inflation. In contrast, the prices for rentals, transportation, and medical services continued to climb.
April saw the US retail sales, a key indicator of consumer spending and inflation trends, remain unchanged. Analysts had anticipated a modest increase of 0.4% in retail sales, down from March's 0.7% growth.
The Euro maintains its positive stance as investors place their bets on the prolongation of higher interest rates by the Fed, with hopes that this will decelerate the expected pace of the European Central Bank's policy normalization.
On Tuesday, Banque Nationale de Belgique Governor and ECB policymaker Pierre Wunsch stated that the initial 25 basis points reductions in key ECB rates appear almost inevitable. However, he cautioned that prolonged high rates by the US Federal Reserve might decelerate the pace of these rate cuts.
A weak Euro attracts significant business from overseas markets, benefiting Eurozone merchants. Historically, investors support the US Dollar against the Euro when the policy divergence between the Fed and the ECB widens.
If the economic outlook strengthens, it could lead to higher employment and wage growth. However, this may eventually reignite price pressures.
Eurostat has revealed its second estimate of Q1 Gross Domestic Product data. The report points to quarterly GDP growth at 0.3% and annualized growth at 0.4%, matching consensus expectations and the preliminary reading. Despite this, EUR/USD held steady as market participants focused more on the upcoming US CPI data.
EUR/USD breaks resistance, triangle formation
The EUR/USD has surged past the critical resistance level of 1.0800, reaching the downward-sloping boundary of the Symmetrical Triangle pattern evident on the daily chart. This pattern has been developing since the December 28 high, which was around.
The Symmetrical Triangle pattern shows a significant contraction in volatility. This formation is marked by an upward-sloping border, starting from the October 3 low at 1.0448.
The EUR/USD pair is hovering around 1.0870, poised at a critical juncture. Should the Symmetrical Triangle pattern result in a breakout, it could hand control to the Euro bulls for an extended run. Conversely, strong selling pressure might pull the pair back toward the inclined support line of the triangle.
The RSI for the 14th period has increased to 60.00. Sustaining above this threshold could ignite a bullish momentum.