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EUR/USD Price Analysis: Euro gains despite weak inflation

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  • German producer prices fell by 3.3%, exceeding expectations for a 3.1% decline.
  • Eurozone inflation fell to 2.4% from 2.6% in March.
  • The market is pricing in a 65 basis point interest rate cut by the ECB this year.

EUR/USD price analysis shows that the euro is strengthening despite slowing inflation in the euro area, indicating that the bullish trend remains solid. The rally came amid a weakening dollar as investors digested recent economic announcements from the United States.

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Data on Tuesday showed German producer prices fell 3.3%, beating expectations of a 3.1% decline. Producer inflation stood at 0.2% for the month, below expectations of 0.3%. Eurozone inflation has been on a steady downward trend. It fell to 2.4% from 2.6% in March, closer to the central bank’s target. As a result, investors and policymakers are growing more confident that the ECB will start cutting interest rates in June well before the Fed.

But ECB policymakers like Isabel Schnabel have called for caution after June’s interest rate cut. That said, the market is pricing in a 65 basis point rate cut this year. Investors will wait for Thursday’s Eurozone PMI report for further clues on the ECB’s policy outlook.

Meanwhile, the dollar remains vulnerable after last week’s economic data revealed cracks in the economy. Rising borrowing costs weakened demand and inflation, giving the Fed even more reason to start lowering interest rates.

However, policymakers remain cautious, dampening expectations for interest rate cuts. Most policymakers are unlikely to change their stance on the central bank’s policy outlook until there is further evidence of falling inflation.

Today’s major events in EUR/USD

Neither the US nor the Eurozone will release any major reports today, so the pair is likely to trade in a range.

EUR/USD Technical Price Analysis: Bulls Resurface 30-SMA Support

EUR/USD 4 hour chart

On the technical side, EUR/USD price is rising after retesting the 30-SMA support, indicating that the bulls are in the lead. At the same time, price is trading within a bullish channel, further confirming the bullish bias.

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The price recently broke through the 1.0800 resistance level and is trying to move above the 1.0900 level. After that, the price entered a consolidation phase as the SMA caught up. From here, the bulls may be ready to move back and break through 1.0900 for further highs.

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