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Euro May Fall on CPI Data as COVID-19 Stokes ECB Easing Bets

Euro, ECB, Christine Lagarde, Coronavirus EUR/USD Outlook– Talking Points

  • The Euro could fall if CPI data underwhelms and strengthens the case for ECB rate cuts
  • EU inflation prospects look gloomy after EUR 5Y5Y showed weakest reading on record
  • EUR/USD rally may be capped by former support. Will CPI drag, or propel pair higher?

ASIA-PACIFIC RECAP: RBA RATE DECISION, AUD REACTION

The Australian Dollar edged higher despite the Reserve Bank of Australia cutting interest rates by 25 basis points from 0.75 % to 0.50%. Get the full report here! Asia-Pacific equities were mostly glowing in green following Wall Street’s impressive recovery with the S&P 500, Dow Jones, and Nasdaq having clocked in 4.6%, 5.1% and 4.5% gains, respectively.

Chart showing coronavirus infections

Source: Johns Hopkins CSSE

EUROZONE CPI MAY INFLAME ECB EASING BETS, PRESSURE EURO

The Euro may retrace some of its impressive gains against the US Dollar if Eurozone CPI data underwhelms and strengthens the case for the ECB to ease interest rates. The core, year-on-year estimate is pegged at 1.2 percent, slightly higher than the prior print at 1.1 percent. However, the spread of the coronavirus throughout Europe in key Eurozone economies may have subdued economic activity and price growth.

Chart showing EUR 5Y5Y

This appears to be what markets believe in light of the Euro 5Y5Y inflation swap forward – a favored inflation gauge of the ECB’s – registering its weakest reading ever at 1.1668, surpassing the prior low at 1.1087. This came as ECB President Christine Lagarde said the central bank stands ready to take the appropriate steps as they closely monitor updates relating to the transmission and impact of the coronavirus.

EUR/USD PRICE CHART

Since bouncing back from the lower tier of the three-year support range between 1.0858 and 1.0783, EUR/USD has climbed over three percent and is now testing former-support-turned resistance. If the pair clears it with follow-through, that could further amplify bullish sentiment and push the pair higher. If upside momentum slows, the pair may encounter some downside friction at 1.1091.

EUR/USD – Daily Chart

Chart showing EUR/USD

EUR/USD chart created using TradingView

EURO TRADING RESOURCES

— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter