February 22, 2024

European Inflation Is Just Ephemeral – Spain’s Finance Minister

Nadia Calvino, Spain’s Finance Minister, stated on Wednesday that the inflation conditions in the United States and Europe are distinct, and that the price increase in the continent is just transitory.

As she explained to radio station Onda Cero, she would not draw parallels between the situation in the United States and the situation in Europe since projections still indicate that it is a transient occurrence in Europe.

Reaction Of The Market

With risk-on trade having slowed a little, the EUR/USD has returned to the red zone, despite a resurgence in demand for the US Dollar all over the board.

The spot price is presently moving at 1.1312, down 0.23% from its previous day’s closing price.

The EUR/USD is holding gains over 1.1300 as the US Dollar seeks to consolidate following the bond price movements created by Powell and the Omicron COVID variation in the previous week.

ECB officials raise concerns about economic growth to justify their loose monetary policies as inflation in the Eurozone rises to a new all-time high.

The ADP and ISM PMI for the United States, as well as Powell’s testimony 2.0, are all being watched.

EUR/USD CHART Source: Tradingview.com

According to the indicator, the RSI has recovered to 60 on the four-hour chart after dipping as low as 50, indicating that sellers are still sitting on the sidelines for the time being.

However, it appears that significant resistance has emerged around 1.1360, where the Fibonacci 38.2% retrace of November’s downturn intersects with the 100-period simple moving average (SMA).

The possibility of further increases approaching 1.1400 (Fibonacci t50% retracement) and 1.1450 (Fibonacci 61.8% retracement) if buyers are successful in turning that level into support is being discussed.

In contrast, the price is aligned with first support at 1.1300/1.1290 (psychological level, Fibonacci 23.6% retracement, 20-period SMA) before 1.1260 (50-period SMA) and 1.1235 (Tuesday low).

Review Of The Fundamentals

EUR/USD has recovered its positive momentum after a dramatic dip during Tuesday’s American trading session, and it has now surged over the psychologically important 1.13000 level.

However, to entice further buyers, the pair must clear the 1.1360 resistance level.

During his testimony before the Senate Banking Committee on Tuesday, Federal Reserve Chairman Jerome Powell stated that it would be prudent to accelerate the pace of inventory tapering in the United States.

Powell went on to say that it was a great time to phase out the use of the term “transitory” when referring to inflation.

After the Fed’s hawkish statements, the chance of the central bank keeping the policy rate constant by June 2022 fell to 23.7% from 43.8% on Monday, per the CME Group’s FedWatch Analyzer.

Powell will speak before the House Financial Services Panel later in the day, and it is doubtful that he will modify his tone on the economy or the economy’s prospects for the foreseeable future.

Although the Dollar’s strength versus its competitors may be bolstered by a hawkish policy stance, the reality is that the US Dollar Index has fallen considerably after the first spike, which implies that the Euro’s losses versus the Dollar are likely to be limited.

Meanwhile, the yield on the 10-year US Treasury bond remains below 1.5%, putting a ceiling on the Dollar’s appreciation.

On Wednesday, the ADP Employment Increase and the ISM Manufacturing PMI will both be released as part of the United States economic calendar.

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