The EUR/USD pair surged to its highest level in nearly two years on Thursday, breaching the 1.1200 mark for the first time since July 2021. This rise came amid easing market tensions following a shift in US trade policy, where the Trump administration decided to reduce tariffs, leading to a general softening of the US Dollar.
US inflation data for March significantly underperformed expectations, contributing to the USD’s weakness. The US Consumer Price Index (CPI) inflation fell to 2.4% year-over-year, and core CPI dropped to 2.8%, marking its lowest point in four years after staying above 3.0% for eight consecutive months. These declines in inflation raised concerns that tariffs could undo the Federal Reserve’s years of efforts to stabilize prices, further impacting market sentiment.
US Consumer Sentiment and Inflation Expectations to Set the Tone
The week will conclude with the release of the University of Michigan (UoM) Consumer Sentiment Index on Friday, where a decline is expected. Analysts anticipate a drop in consumer sentiment, likely falling to a nearly three-year low of 54.5 in April, as American consumers continue to feel the strain of the Trump administration’s tariff and trade policies. Additionally, UoM’s 1-year and 5-year Consumer Inflation Expectations will be closely watched, with previous readings standing at 5% and 4.1%, respectively.
EUR/USD Technical Outlook: Potential for Short-Term Pullback
The sharp rise in the EUR/USD pair has left it in somewhat of a technical “no man’s land,” as the price struggles to maintain momentum above the 1.1200 level. Traders will be cautious of signs of technical weakness, as the pair might face resistance at this key level. Technical indicators show overbought conditions, and maintaining upward momentum could become increasingly challenging. The 200-day Exponential Moving Average (EMA), currently near 1.0885, could act as a strong support level should the pair experience a pullback.
In the near term, any signs of price weakness may prompt a retreat from current highs, as traders reassess the sustainability of the rally.
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