Euro breaks above 1.09 as CPI surges

The euro has posted considerable gains on Thursday. In the European session, EUR/USD is trading at 1.0906, up 0.47% on the day.

Eurozone CPI hits 7.4%

The euro has rebounded nicely as it trades at the 1.09 line. Less than a week ago, EUR/USD broke below a major support line at 1.0800, raising concerns that the currency could continue to fall. Investors have reacted favourably to the March inflation report, which showed a gain of 7.4% YoY (5.9% prior). Inflation has skyrocketed in the eurozone in recent months – in March 2021, the inflation rate was a measly 1.3%.

Despite the sharp rise in inflation, the ECB has adhered to a dovish monetary policy. ECB President Lagarde disappointed the markets when she sidestepped providing any meaningful guidance at the April meeting, which sent the euro lower. Still, there are reports that the ECB is moving in the direction of raising rates in the third quarter of 2022, most likely by 0.25%. On Wednesday, hawkish comments by an ECB member pushed the euro higher. Martins Kazaks, head of the Latvia central bank said that a rate increase was possible in July, adding that he would not challenge market pricing, which has forecast that the ECB’s deposit rate of 0.50% will rise to zero, with a 0.25% increase in September and December.

Talk of one or more rate hikes later this year is bullish for the euro, but there are headwinds that could impede any upward movement. The main obstacle is the war in Ukraine and the issue of sanctions against Russia. As the war continues, there is more pressure on Western Europe to tighten sanctions, but moves such as an embargo on Russian oil will hurt the eurozone economies, which are largely dependent on Russian energy.

.

EUR/USD Technical

  • There is resistance at 1.0923 and 1.1008
  • 1.0790 is a weak support level. Below, there is support at 1.0705

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

Latest posts by Kenny Fisher (see all)