EUR/USD: Key levels to watch as US inflation spikes to a 13-year high

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on May 12, 2021
  • The EUR/USD price retreated after the latest US consumer price index data.
  • The headline CPI rose by 4.2% while core CPI rose by 3% in April.
  • The Eurozone industrial production struggled because of capital and durable goods.

The EUR/USD declined after the latest Eurozone industrial production and US consumer inflation data. It fell to 1.2072, which is about 1% below this week’s high of 1.2180.

EUR/USD
EUR/USD price action

Eurozone industrial production and US inflation

The Eurozone economy seems to be recovering at a slower speed than that of China, the United States, and the UK. This performance is partly because of the supply disruptions that happened in the first quarter and the lockdowns implemented by many governments. 

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According to Eurostat, the bloc’s industrial production rose by just 0.1% in March after falling by 1.2% in the previous month. This growth was lower than the median estimate of 0.7%. Since the bloc was in lockdown in March 2020, the year-on-year figure rose by 10.9%. 

The sluggish growth was mostly because of the production of capital and durable goods. This decline was offset by the production of intermediate and non-durable goods. Still, analysts at ING believe that this weakness is a “short rest before a rebound.” They wrote:

“Looking at the larger eurozone economies, production expectations are at record highs in Germany, Spain, the Netherlands and almost in France but still significantly below record highs in Italy.”

The EUR/USD also reacted mildly to the latest German, French, and United States inflation data. In Germany, the CPI rose from 0.5% to 0.7% while in France, it rose declined from 0.6% to 0.1%. On a year-on-year basis, prices in the two countries rose by 1.2% and 2.0%, respectively.

Elsewhere, in the US, prices rose by 0.8% pushing the headline inflation up by 4.2%. This was higher than the previous month’s high of 2.6% and the Fed’s target of 2.0%. Further, the core CPI rose by 0.9% on an MoM basis and by 3.0% on a year-on-year basis. The data came at a time when the prices of most commodities is at a record high. These numbers imply that the Fed will be under pressure to start scaling down its easy money policy.

EUR/USD forecast

EUR/USD
EUR/USD technical chart

The four-hour chart shows that the EUR/USD pair formed a double-top pattern this week. Today, it dropped to the 23.6% Fibonacci retracement level of 1.2070. It has also moved below the 25-day and 50-day moving averages (MA) while the Relative Strength Index (RSI) has moved from the overbought level to 47. Therefore, the pair may continue retreating as bears target the 50% retracement level at 1.1943.

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