Given the clearer trajectory for euro area disinflation, tomorrow’s CPI inflation print for March will be one to monitor. You may recall that YoY headline inflation slowed to 2.6% in February from 2.8%, weighed down by cooling food, manufactured goods, and energy prices. Expectations heading into tomorrow’s release show both headline and core readings (YoY) down to 2.5% (from 2.6%) and 3.0% (from 3.1%), respectively.
Technically, this remains a bearish pair. Longer-term studies have maintained a downside bias since 2008. The pullback off September 2022 lows at $0.9536, therefore, could be viewed as a sell-on-rally scenario. The bearish vibe is emphasised on the daily chart in the shape of a possible head and shoulders top formation, though the neckline is taken from the low of $1.0724 and is directed to the downside, which can limit risk-reward for any sellers basing a technical short on this pattern. You may also note that the pair is currently testing support on the daily chart from $1.0739 and will be a key level to keep an eye on heading into tomorrow’s risk event.
Given the ECB’s dovish tone, any meaningful deviation to the downside will likely see the euro pulled lower against the majority of its G10 peers. Any upside surprise could underpin the euro but is likely to be short-lived.
