EUR/USD: Next Stop, 1.20? Overbought Conditions And A Vaccine Scare May Cause A Pause

  • EUR/USD has been riding higher after US inflation fell short of investors’ fears.
  • The halting of J&J’s vaccine distribution may delay Europe’s exit from the covid crisis.
  • Wednesday’s four-hour chart is showing overbought conditions.

No stopping the printing press – fears that the Federal Reserve would taper its bond-buying scheme have proved premature after Tuesday’s developments and the dollar is under growing pressure.

First, highly anticipated inflation figures for March bumped higher, but not as much as the hype had suggested. The Core Consumer Price Index hit an annual level of 1.6% – as estimated and below the Fed’s 2% target. Moreover, most of the increase in headline CPI came from energy prices which may stabilize in the next few months.

Secondly, the Treasury successfully auctioned 30-year bonds, the second consecutive smooth offering of US debt in as many days. High demand pushed yields lower, thus making the dollar less attractive.

Jerome Powell, Chair of the Federal Reserve, will speak later on and may feel vindicated that his insistence that inflation will be transitory is proving correct – at least for now. His colleagues John Williams, Richard Clarida, and Raphael Bostic have also slated the speak and the Fed also publishes its “Beige Book” providing insights about the economy.

The world’s most powerful central bank has not only urged patience with inflation but also wants to see a substantial increase in employment before moving. That may take a long time. In the meantime, the dollar could remain under ongoing pressure.

However, the greenback’s decline could have been even more significant if the safe-haven currency would not react to the latest vaccine concerns. The US FDA recommended pausing injecting the firm’s immunizations after six cases of rare blood clots among 6.8 million people that were inoculated. The investigation will likely take several days.

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