FX.co ★ EUR/USD: CPI of the Eurozone, Trump, and Powell

The report released on Tuesday on the rise of the Eurozone's CPI came out in the "red zone," providing background support for EUR/USD buyers. The report indicated that all components fell short of forecasted values. On the other hand, the release reflected an acceleration in overall inflation in the European region. Traders reacted weakly to this report, as the tone of the trading is currently set by geopolitics. Nevertheless, the figures released on Tuesday allow for certain conclusions.

In terms of "dry numbers," the situation is as follows: the overall Consumer Price Index accelerated in March to 2.5% year-over-year. This is the fastest growth rate since January 2025. Most analysts expected to see a more significant increase, up to 2.6%. The core CPI, excluding energy and food prices, unexpectedly slowed this month, dropping to 2.3%. Most experts projected this figure would stagnate at the February level of 2.4%.

What does this release indicate? First and foremost, the March increase in inflation in the Eurozone is externally driven—"energy"-related, rather than internally driven by "demand." The key driver of the overall CPI acceleration was the change in energy prices, which rose by nearly 5% (4.9% year-over-year) after a substantial decline (-3.1%) the previous month. This is the strongest growth rate since February 2023. The reasons are apparent: the Middle Eastern conflict and the subsequent energy crisis. As is well known, the Eurozone is structurally dependent on energy imports (especially oil and gas), so this outcome was predictable.

However, despite the sharp acceleration of overall inflation, the published report ultimately did not favor the euro. The simple reason is that the release reduced the likelihood that the European Central Bank (ECB) would increase interest rates—at least at the upcoming (April) meeting.

Thus, despite overall index growth, the decline in core inflation suggests that inflationary pressures in the economy are gradually stabilizing or slowing. For instance, the growth rate of service costs slowed to 3.2% (from the previous value of 3.4%). Although this component remains at an unacceptable level for the ECB, the dynamics are what matter.

Additionally, the growth in the cost of industrial goods has also slowed (by 0.5%), as well as food, alcohol, and tobacco products (by 2.4%).

Undoubtedly, the energy factor will remain the main risk for the ECB's forecasts in the coming quarters. However, the current situation allows the ECB to adopt a wait-and-see approach and avoid rushing to raise interest rates in April. Such a time cushion will enable the central bank to assess secondary effects: whether the energy shock will translate into wages, the services sector, and inflation expectations (and if so, how quickly this will occur).

In other words, the report allows the ECB to maintain the status quo at the April meeting.

The EUR/USD pair responded minimally to the release, as this scenario (a wait-and-see position from the ECB) was already the baseline expectation prior to the publication of the inflation report.

Tuesday's price retracement of EUR/USD is due to other fundamental reasons.

First, traders reacted to an insider from The Wall Street Journal stating that Trump is ready to end the active phase of military operations against Iran, even if the Strait of Hormuz remains blocked. According to the WSJ, he allegedly communicated this position to his close aides. In turn, The Daily Telegraph claims that Trump proposed transferring control of the strait to an "international consortium." However, which countries could join this consortium, and how its members would unblock this vital transport artery, remain unknown. Still, the market reacted to the sensational headlines that "Trump plans to end the war." Meanwhile, participants are ignoring the buildup of American military power in the region and numerous insights suggesting that the US president is seriously considering the option of conducting a ground operation (aimed at capturing the Iranian island of Kharg).

The second reason for the northward retracement of EUR/USD is statements from Jerome Powell, who said that the Fed's monetary policy is "in a good position to maintain a wait-and-see stance and evaluate further developments." It should be noted that the European Central Bank, unlike the Fed, does consider tightening monetary policy, although the probability of interest rate hikes has decreased somewhat following Tuesday's release. However, Powell's "wait-and-see" position played against the greenback—at least, "in the moment."

Overall, there remains uncertainty regarding the pair. The current price increase is corrective and unreliable, as fundamental support from geopolitics remains fragile. If Trump again "switches from grace to wrath" by threatening Iran with the destruction of energy infrastructure, the safe dollar will once again see heightened demand. In my opinion, it is still too early to speak of de-escalation of the Middle Eastern conflict—beyond Trump's statements (known for their inconsistency), there are no other signs of approaching peace.

Thus, for the EUR/USD pair, it is advisable to consider short positions, especially if buyers fail to overcome the resistance level of 1.1550 (the Bollinger Bands middle line on the D1 chart, coinciding with the Tenkan-sen line). If bullish momentum fades in this price area, sellers will regain the initiative in the pair. The targets for this downward movement are 1.1500 (the Bollinger Bands middle line on the four-hour chart) and 1.1450 (the Bollinger Bands lower line on the same timeframe).