- EUR/USD has been displayed a modest rebound on a minor correction in the DXY.
- The central banks do not see the return of a lower inflation environment.
- The US PCE Price Index may slip to 4.7% vs. 4.9% recorded earlier.
The EUR/USD pair has witnessed a minor rebound after hovering around 1.0430 in the early Tokyo session. In the past two trading sessions, the asset has fallen like a house of cards after failing to sustain above the round-level resistance of 1.0600. The major extended its losses on Wednesday after violating the psychological support of 1.0500.
The initiation of significant shorts by the market participants escalated on Wednesday after pessimist commentary from European Central Bank (ECB) President Christine Lagarde. In the ECB’s annual Forum on Central Banking, ECB Lagarde cleared that the economy is not going to return to the low inflation environment. Also, the inflation expectations will remain elevated further.
Russia’s invasion of Ukraine and supply chain bottlenecks have resulted in soaring food and energy prices, which have significantly diminished the real income of the households.
Meanwhile, the US dollar index (DXY) has witnessed a minor fall after failing to cross the critical resistance of 105.19. The odds of a consecutive 75 basis point (bps) rate hike by the Federal Reserve (Fed) have advanced as the Fed is ‘unintentionally committed’ to cool the hot-red inflation. This will compel the Fed to announce more rate hikes.
In addition to ECB Lagarde, Fed Powell has also delivered no guarantee of returning higher inflation to the targeted rate of 2%.
Going forward, investors will focus on the release of the US Core Personal Consumption Expenditure (PCE) Price Index, which may decline to 4.7% from the prior print of 4.9% on an annual basis. However, the monthly figure is seen higher to 0.4% vs. 0.3% reported earlier.