The EUR regained strength, rising above $1.0850 as the appetite for riskier assets improved early in the week. While the DXY experienced a slight decline due to a report indicating sticky consumer inflation expectations, the EUR was bolstered by a positive industrial production report from Germany and improving investor sentiment data.
The recent report revealed that German industrial production surged by 2.1% month-on-month in February, surpassing market forecasts of 0.3%. This marks the second consecutive month of growth and the quickest rate of expansion in 16 months, driven by increased activity in construction, automotive, and chemical sectors. Despite the optimistic data, it's important to note that this does not signify a significant structural recovery yet, but rather a seasonal uptick in economic performance. Industrial production still lags approximately 8% below its pre-pandemic levels, and the less volatile three-month comparison continues its decline. Additionally, the latest Sentix report indicated a strengthening investor confidence across the Euro area for the sixth consecutive month in April, reaching a 26-month high, as expectations turned positive for the first time since the onset of the Ukraine war.
Looking ahead, investors will closely monitor the US Consumer Price Index (CPI) report for March, set to be published tomorrow. Robust price pressures could dampen expectations of Federal Open Market Committee (FOMC) rate cuts for June, bolstering demand for the US dollar, whereas weak figures might fuel speculation about the Fed shifting towards rate cuts during the same period. On the Eurozone front, attention will turn to the European Central Bank (ECB) interest rate decision scheduled for Thursday. Although the central bank is widely expected to maintain its key borrowing rates at 4.5%, investors will be keen to discern hints about the timing of potential rate cuts. In the short term, with EUR/USD stabilising above the $1.0850 threshold, it is positioned for a bullish trend until Thursday, with the next resistance level anticipated at $1.0873, corresponding to the 100-day simple moving average.
