EUR/USD sees a dead cat bounce above 1.0600, warrants downside ahead of US Inflation

• EUR/USD is bided around 1.0610 as DXY eases mildly after hitting a fresh weekly high at 103.37.
• A neutral policy stance by the ECB has weakened the shared currency bulls.
• The DXY is expected to resume upside as the US inflation is seen stable at above 8%.

The EUR/USD pair has been mildly bided around 1.0610 after nose-diving from Thursday’s high at 1.0774. The shared currency bulls have been weakened by a neutral policy announcement from European Central Bank (ECB) President Christine Lagarde.

Considering the rising price pressures in the eurozone, market pundits were expecting a rate hike announcement. On the contrary, the ECB came forward with hawkish guidance and the ending of the Asset Purchase Program (APP) by June itself. Last week, the eurozone Harmonized Index of Consumer Prices (HICP) landed at 8.1% vs. 7.4%, as previously reported.

Economies that are operating at an annual inflation rate above 8% have already paddled up their interest rates to safeguard the paychecks receive by the households. So, the rationale behind not elevating the interest rates by the ECB could be lower growth forecasts as the adaptation of restrictive quantitative measures could dampen the growth rate further.

ECB’s Lagarde dictated that the inflation rate has climbed rooftop and to tackle the same the ECB will announce a 25 basis point (bps) rate hike in July and may be more than 50 bps rate hike in September.  A neutral approach adopted this time has elevated the inflation forecasts to much higher levels.

Meanwhile, the US dollar index (DXY) has shown some signs of exhaustion and a minor recovery in the risk appetite of the market participants. The DXY has been offered around 103.37, however, the upside is intact on expectations of a stable inflation rate above 8%.