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FX Headlines: Euro Surges Against Dollar on Surprising Inflation Data

FX Headlines: Euro Surges Against Dollar on Surprising Inflation Data

2011-03-31 13:31:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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The Euro gained across the board in the overnight session as inflation data showed that price pressures accelerated unexpectedly in March. The Euro is now up 6.2 percent against the Greenback this year. The EUR/USD pair has been able to advance unabated for the past few days, despite the growing suspicion that Portugal will require a bailout, and that Ireland, who has stress tests for its commercial banks due today, will need more capital to remain solvent. Nonetheless, ff there were any doubts that the European Central Bank would raise rates, today’s surprise data is likely the gear inflation hawks needed to ratchet a rate hike in motion. Positive data from the United States couldn’t bolster the Dollar, as figures showed that few American filed for unemployment benefits last week.

FX_Headlines_Euro_Surges_Against_Dollar_on_Surprising_Inflation_Data_body_Picture_13.png, FX Headlines: Euro Surges Against Dollar on Surprising Inflation DataFX_Headlines_Euro_Surges_Against_Dollar_on_Surprising_Inflation_Data_body_Picture_19.png, FX Headlines: Euro Surges Against Dollar on Surprising Inflation DataFX_Headlines_Euro_Surges_Against_Dollar_on_Surprising_Inflation_Data_body_Picture_16.png, FX Headlines: Euro Surges Against Dollar on Surprising Inflation Data

Fundamental Headlines

Japan Nuclear Evacuation Zone Under Scrutiny - WSJ

Fed to Name Banks that Borrowed From Discount Window - Bloomberg

Jobless Claims Fall More than Expected - CNBC

Stocks Struggle to End Strong but Volatile Quarter on a High – Financial Times

Dimon Warns of Bank ‘Nail in the Coffin’ – Financial Times

EURUSD: The EUR/USD pair advanced in the overnight session, as high as 1.4232, on data showing that inflation accelerated at a faster than expected rate in March, helping the European Central Bank’s case to raise rates at their meeting next week. The Euro gained against all other currencies as well, except for the Swiss Franc. The Overnight Index Swaps now show that 124.3 basis points have been priced in over the next 12-months for the currency bloc, with a 151.2 percent chance of a 25-bps rate hike at their next meeting, which is next Thursday.

Taking a look at price action, a key level at 1.4159 appears to be a level of support, on a rising trend line dating back to mid-January. The trend line has coincided with the 20-SMA, further supporting our notion that this level represents a significant level of support. Rising interest rate expectations, coupled with further liquidity injections by the Federal Reserve, have boosted the Euro and debased the U.S. Dollar in recent weeks. The pair is pressing back towards its 100.0 Fibo extension, on the November 5 to January 10 move. Weak labor data tomorrow in the form of nonfarm payrolls tomorrow could further boost the Euro, as it would infer that the Federal Reserve would be forced to sustain low interest rates for some time.

Written by Christopher Vecchio, DailyFX Research.

To contact the author of this report, please send inquiries to: research@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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