EUR/USD Rebounds on Stronger-than-Expected EU Inflation Data

EUR/USD bounced back from its weekly lows, boosted by better-than-expected inflation data from the Eurozone. The European Harmonized Index of Consumer Prices (HICP) exceeded forecasts, rising by 2.6% year-on-year, while Core HICP increased by 3.1%, topping expectations but slightly lower than January’s figures.

This positive news led to an increase in yields both in Europe and the US, providing support for the euro. Investors are anticipating rate cuts in 2024, with the first expected in June. The European Central Bank (ECB) is projected to gradually reduce rates, especially with potential wage increases on the horizon.

ECB’s Robert Holzmann emphasized the need to monitor inflation risks carefully, indicating a cautious approach to rate decisions. Meanwhile, Richmond Fed President Thomas Barkin adopted a hawkish stance, expressing reluctance to ease policy unless economic indicators justify it.

Despite a mixed picture in manufacturing activity, with S&P Global reporting expansion while ISM indicated contraction, the EUR/USD remained resilient. Technical analysis suggests a bullish outlook, with the Relative Strength Index (RSI) showing potential for further upside. If the pair surpasses the 200-day moving average (DMA) at 1.0828, it could continue its upward trajectory towards the 50-DMA at 1.0871.

EUR/USD Price Action – Daily Chart

EUR/USD