EUR/USD turns positive and retakes 1.0900 on US CPI

• EUR/USD now reverses the initial drop and looks to 1.0900.
• Germany Economic Sentiment dropped to -41.0 in April.
• US headline CPI rose 8.5% YoY in March, the highest since 1981.

After bottoming out in the 1.0850 region earlier in the session, EUR/USD now regains some buying interest and returns to the 1.0900 neighbourhood on Tuesday.

EUR/USD: Upside looks capped by 1.0930

EUR/USD now adds to Monday’s uptick and hovers around the 1.0900 region, reversing the pessimism seen earlier on Tuesday in the wake of the release of US inflation figures for the month of March.

Indeed, the greenback lost some upside momentum after US consumer prices rose at the fastest pace since late 1981 in March at 8.5% YoY, while prices excluding food and energy costs rose at an annualized 6.5%. The knee-jerk in the dollar comes pari passu with the corrective downside in US yields across the curve despite the inflation release appears to reinforce the case for a 50 bps interest rate hike by the Fed at its next meeting.

Earlier in the session, the German and EMU Economic Sentiment dropped to -41 and -43, respectively, for the current month.

What to look for around EUR

Sellers continue to rule the sentiment around EUR/USD, which extended the downtrend to fresh lows in the vicinity of 1.0830 at the end of last week. The multi-session negative performance of the pair comes in response to the firmer pace of the greenback and renewed geopolitical concerns. As usual, pockets of strength in the single currency should appear reinforced by speculation the ECB could raise rates before the end of the year, while higher German yields, elevated inflation, the decent pace of the economic recovery and auspicious results from key fundamentals in the region are also supportive of a rebound in the euro.

Key events in the euro area this week: Germany Final Inflation Rate, ZEW Economic Sentiment (Tuesday) – ECB Interest Rate Decision (Thursday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. Speculation of ECB tightening/tapering later in the year. Second round of the presidential elections in France. Impact on the region’s economic growth prospects of the war in Ukraine

EUR/USD levels to watch

So far, spot is up 0.09% at 1.0893 and faces the next hurdle at 1.0933 (weekly high April 11) followed by 1.1000 (round level) and finally 1.1131 (55-day SMA). On the other hand, a breach of 1.0836 (monthly low April 8) would target 1.0805 (2022 low March 7) en route to 1.0766 (monthly low May 7 2020).