Many traders are puzzled why a decline in the euro was so modest at Friday's close. There were plenty of reasons for a steep downward movement. To start with, flash data on EU inflation revealed a jump to 7.5% from 5.9%.
According to the most pessimistic forecasts, the reading was expected to come in at 6.9%. Notably, this was already the March figure. The increase in consumer prices turned out to be much stronger than previously anticipated. Many analysts are confident that inflation is highly likely to drop further.
They also firmly believe that consumer prices will continue to rise in April. The worst thing is that the ECB has not taken any measures to curb soaring inflation. The regulator is still reluctant to change its monetary policy parameters.
It only pledged to taper the quantitative easing program gradually. However, Christine Lagarde admitted that the watchdog is ready to adjust all of our instruments if necessary. Perhaps she hinted at the possibility of expanding and extending the program. If so, it may significantly speed up inflation.
Apart from EU inflation data, the US nonfarm payrolls report exceeded the most optimistic forecasts. The unemployment rate decreased to 3.6% from 3.8% versus the forecast reading of 3.7%. The economy added 431,000 new jobs.
Analysts had expected the indicator to be a total of 460,000. Nevertheless, the number of new jobs is still higher than needed to maintain the stable unemployment rate. This is why unemployment is likely to continue to decline.
The question is why the euro dipped slightly given such unfavorable fundamental factors. Perhaps the main reason was Russia’s demand to pay for gas in rubles. Last Thursday, the euro nosedived significantly amid expectations of a transition to gas settlements in rubles.
Curiously enough, the payment scheme is created so that payment terms have not changed significantly for European companies. It somewhat calmed market participants. The pressure on the euro also weakened.
Nevertheless, its prospects are still quite gloomy. After studying the latest macroeconomic data, analysts have concluded that the sanction war with Russia is too costly for Europe. Only the US seems to benefit from geopolitical woes.
Russia’s decision to accept payments for gas deliveries in rubles will undoubtedly affect the EU economy in the near future. It has certain pitfalls that are not favorable for the EU and the euro. So, the eurozone is likely to deal with the consequences later.
The euro/dollar pair managed to recover slightly after the price rebound from the resistance range of 1.1120/1.1180. As a result, it returned to the psychologically important level of 1.1000. After that, it entered a narrow range.
The RSI indicator crossed the 50 line from top to bottom on the 4H chart, signaling an increase in the volume of short positions. The Alligator H4 indicator has shown an intersection between the moving averages. It points to the completion of the corrective movement.
There is a downtrend on the daily chart. In its structure, there was a corrective movement from 1.0800 to 1.1180.
Outlook
Currently, the pair is trading flat. It may lead to the accumulation of long positions and new price jumps. The downward movement is likely to continue if the price holds below the level of 1.1025. If this scenario comes true, the pair may drop to 1.1000–1.0960.
Alternatively, the price may rebound to 1.1120. Bulls will take the upper hand if the price consolidates above 1.1080 on the 4H chart. Due to price stagnation, the complex indicator analysis gives a mixed signal on the short-term and intraday charts. Technical indicators provide a sell signal on the medium-term charts.