EUR/USD: Bearish trend persists after the strong US PPI data

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 13, 2021
  • The EUR/USD retreated after the strong EU consumer price index data.
  • The producer price index numbers also rallied in April.
  • The pair fell even after the European Commission boosted EU outlook

The EUR/USD is wavering as traders continue to focus on the strong US inflation numbers and the recent Eurozone economic upgrade. It is trading at 1.2083, which is slightly above this week’s low of 1.2050.

EUR/USD
EUR/USD price chart

US inflation rose in April

The American economic recovery is accelerating as the country continues to reopen. This, in turn, has led to higher prices, as evidenced by the recent CPI numbers published on Wednesday. According to the Bureau of Labour Statistics, headline sales rose by 4.2% in April, the fastest rate since 2008. Core CPI, which strips the volatile food and energy prices, rose by 2.3%. 

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These numbers were bigger than what most analysts were expecting. They also surprised some Fed members like Vice Chairman, Richard Clarida. In a statement, he said that the number surprised him but that the prices were transitory. He said:

“If, contrary to our baseline view, demand relative to supply was excessive and persistent and pushed up inflation and inflation expectations to levels that were not potentially consistent with our mandate.”

Producer prices also surged, according to the bureau. The headline PPI rose from 4.2% in March to 6.2% in April. On a month-on-month basis, the prices rose by 0.6%. At the same time, the core PPI that excludes volatile products rose by 3.7% year-on-year. This performance was because of the surge in commodity prices and the rising demand.

The EUR/USD price is also reacting to an upgrade of the Eurozone economy by the European Commission. In a report, the commission said that the economy will grow by 4.3% this year and by 4.4% in the following year. This is substantially higher than the previous estimate of 3.8% and the 2020 decline of 6.6%. 

EUR/USD prediction

EUR/USD
EUR/USD chart

The EUR/USD declined today as the dollar gained as inflation rose. On the four-hour chart, the price is hovering at the 23.6% Fibonacci retracement level. It has also entered the Ichimoku cloud and moved below the 25-weighted moving average. Therefore, there is a possibility that the pair will keep falling, with the next target being at the 50% retracement at 1.1940. However, a move above 1.2150 will invalidate this thesis.

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