EUR/USD: American inflation, a poisoned gift for… the ECB?

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Yesterday’s publication of higher-than-expected US inflation figures caused a very strong upward reaction in the Dollar, with 10-year government bond yields rising to their highest level since November. In detail, “CPI” prices came out above expectations, at +0.4% in monthly data, excluding food and energy. On an annual basis, in the broadest base of products, prices increased by 3.5%, which represents a clear acceleration in inflation compared to February (+3.2%).

And this as we approach the end, this Thursday, of a Council of Governors of the European Central Bank. Will this inflation across the Atlantic change the communication of the central bank based in Frankfurt, wonders Alexandre Baradez (IG France), for whom these American inflation figures are clearly a “poisoned gift” for the ECB.

“It seems unlikely that the ECB will decide to rule out the June option for its first rate cut because the latest inflation figures in France and Germany in particular have recently shown significant improvements. But this is the overall tone of the press release from the ECB and Christine Lagarde’s press conference which could be adjusted so that sentiment does not diverge too sharply from the Fed. The ECB could take refuge behind the question of the rebound in raw materials to justify an approach always cautious in relation to rate cuts, or even explain that a first cut in June would not necessarily open a regular sequence at each meeting, that these cuts could be spaced out, etc….”

So what to expect from this meeting? Not much in terms of rates, which will remain stable (4.50% for the principal)…

“On the occasion of the meeting of the Governing Council scheduled for Thursday April 11, the European Central Bank (ECB) should unsurprisingly opt for the status quo, with the first rate cut expected to take place at the earliest at the meeting of June”, adds Maxime Mura, IG Rates and Credit Manager at Swiss Life Asset Managers France. “The good performance of employment figures, despite the decline in inflation, justifies the temporary maintenance of key rates at current levels.”

It is above all a question of preparing the ground before the first decisions in June. The European Central Bank could then – this would be a historic first – outdo the Fed by starting first, if only a few hours in advance, its process of reducing key rates.

“The ECB is approaching the inflection point on key rates. The latest inflation figures in Europe are reassuring and growth, although it has undoubtedly reached its bottom, remains sluggish. However, we do not expect anything concrete during this meeting, at most a slightly more accommodating speech, even if the speech on the still existing risks will probably be confirmed. The first decisions could be taken in June. Until then, caution in actions and in language, will prevail”, for Emmanuel Auboyneau, Managing Partner at Amplegest.

On the agenda this Thursday, to follow as a priority the ECB’s monetary policy decision at 2:15 p.m. and the Institution’s press conference at 2:45 p.m. In the meantime, at 2:30 p.m., we will monitor producer price indices and weekly registrations for unemployment benefits across the Atlantic.

At midday on the foreign exchange market, the Euro was trading against $1.0740 approximately.

KEY GRAPHIC ELEMENTS

The very sharp downward movement of the Euro/Dollar following the publication of inflationary figures in the United States unlocked our stop at $1.0767. We prefer to stay out of the spot immediately, waiting for a clearer technical signal. The test of an intermediate support zone at $1.0693 could potentially be instructive.

MEDIUM TERM FORECAST

Considering the key graphical factors that we have mentioned, our opinion is neutral in the medium term on the Euro Dollar (EURUSD).

We will maintain this neutral opinion as long as Euro Dollar (EURUSD) prices are positioned between support at 1.0693 USD and resistance at 1.1012 USD.

DAILY DATA CHART