European Producer Inflation Falls -0.9%, But Eyes Fixed on The ECB

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  • The Euro declines against the US Dollar and the Japanese Yen but increases against other European currencies. These include the Swiss Franc and Pound.
  • Investors have their attention fixed on the upcoming Interest Rate Decision by the European Central Bank.
  • The European Producer Price Index for February 2024 read -0.9%, the lowest since July 2023 and significantly lower than expectations.
  • The European Final PMI data read higher than preliminary figures, but the currency will struggle to hold onto gains with a dovish ECB.

EURUSD

The EURUSD exchange rate continues to trade within its established price range between 1.07956 and 1.08660. The exchange rate came under pressure as the price rose to the resistance level for a fourth time. The price has since then declined by 0.20% and continues to obtain a “buy” signal from trend indications. However, price action is less appealing, and investors note that the price will be less determined by the price or indicators, but by tomorrow’s employment data and Thursday’s ECB press conference.

Analysts expect the European Central Bank to keep interest rates at 4.50%, but investors will be more interested to hear the Press Conference. European inflation has fallen to 2.6%, which is much lower than previous expectations and only 0.6% above the regulator’s target. Simultaneously, the EU’s Gross Domestic Growth Rate is 0.0% much lower than the US and in need of monetary stimulus. For this reason, investors will be closely listening to President Lagarde’s press conference. Ideally investors will want to hear a concrete indication of when interest rates may fall.

After lower inflation, lower GDP growth and today’s lower producer inflation, economists believe the ECB will cut before the Fed. However, Goldman Sach’s advised the ECB will cut rates in June and wait for the Fed to cut first. ECB policymakers have been signalling not to loosen monetary policy despite the prompt reduction of consumer prices and continued stagnation in the EU’s economy.

The US Dollar on the one hand has been supported of higher-than-expected inflation from the 5 inflation releases in February. However, on the other hand, economic data has been significantly weaker. According to the latest releases, the US GDP fell short as did consumer sentiment and PMIs. Due to this, the US Dollar Index has seen short spells of higher pricing but overall has been kept within the previous range. Another concern for the Dollar is the rise in the price of Gold which may indicate investors are mitigating risk away from the Dollar.

Though, investors should note that this is likely to change if the US employment data continues to indicate resilience. Tomorrow the US will release their JOLTS Job Openings and the NFP data on Friday. If tomorrow’s JOLTS data is higher than 8.90 million, which is higher than expectations, the Dollar can continue to see gains. On Friday, analysts expect the US Unemployment Rate to remain at 3.7%, 198,000 added to the employment force and for salary growth to read a 0.2% increase.

If the price of the exchange rate falls below 1.08405, the price will form a bearish breakout and lower low. This can potentially signal a short-term downward price movement. However, if the price falls below 1.08300 indicators will signal sellers are gaining control. Below 1.08300 the price will cross below the 75-Bar EMA and 50.00 on the RSI.

Michalis Efthymiou

Market Analyst

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