The EUR/USD has come back under pressure on Wednesday as risk aversion struck financial markets on renewed concerns about ramping inflation and prospects of a stagflation case developing in the Eurozone.
The pair pulled back from a weekly high of 1.0563 to a low of 1.0462 after the European Union reported April’s CPI figures. Consumer inflation reached 7.4%, while core prices grew 3.5% in the year to April.
The euro weakened across the board, losing more than 100 pips against the dollar and the Swiss franc. The EUR/CHF pair has dropped over 130 pips, or 1.3%, despite Swiss National Bank Chairman Thomas Jordan’s warning that they are ready to intervene in currency markets if needed.
Meanwhile, the U.S. Dollar Index, which measures the value of the American currency against a basket of peers, posted the first daily gain after a correction that led to three consecutive daily losses. The risk-off environment sent Wall Street indexes into the red while boosting bond demand, therefore pressuring yields.
Federal Reserve Chairman Jerome Powell’s comments on Tuesday helped the dollar to regain its appeal. Powell said the FOMC is comfortable with 50 bps hikes, but they could speed up or slow down if economic conditions change.
From a technical perspective, the EUR/USD holds a negative tone according to the daily chart. The RSI points south below its midline, while the MACD shows decreasing buying interest.EUR/USD daily chart.
At the same time, the price failed to establish above a bearish 20-day SMA which offers dynamic resistance at around Tuesday’s high of 1.0555. The EUR/USD pair needs to at least overcome this hurdle to ease the renewed bearish pressure. The next resistance could be found at the 1.0640-50 area.
On the other hand, the loss of the 1.0430 support zone could expose the 1.0400 psychological level and the January 2017 low of 1.0340.