Eurozone inflation accelerates: Why is the Euro pulling back?

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The Euro (EUR) nudges higher against the US Dollar (USD) on Tuesday, although the pair has retreated from session highs at 1.1650, trading at 1.16440 at the time of writing.

EUR/USD recovery halts below 1.1650 despite hot Eurozone HICP data.
Inflation in the Eurozone accelerated to a 3.2% yearly rate in May, from 3% in April.
The pair remains trapped within the last two weeks' range below 1.1660.

The Euro (EUR) nudges higher against the US Dollar (USD) on Tuesday, although the pair has retreated from session highs at 1.1650, trading at 1.16440 at the time of writing. The hotter Eurozone inflation figures do not change the view that the European Central Bank (ECB) will hike rates in June, while concerns about Iran’s war and strong US data keep US Dollar dips limited.

The Eurozone Harmonised Index of Consumer Prices (HICP) grew by 3.2% year-over-year (YoY) in May, up from 3% in April, according to preliminary data released on Tuesday. The core HICP rose by 2.5%, faster than April's 2.2% advance and above the 2.4% market consensus.

On the geopolitical front, a ceasefire between Israel and Hezbollah in Lebanon has lifted market sentiment on Tuesday and contributed to the moderate Euro recovery. Investors, however, remain on edge after Tehran announced the suspension of peace talks with the US on Monday due to violations of the ceasefire.

In the US, ISM Manufacturing Purchasing Managers Index (PMI) figures released on Monday showed a healthy expansion of business activity in May, with new orders increasing fast and the decline in employment slowing down. Later on Tuesday, the focus will be on the US JOLTS Job Openings data, which will set the tone for a string of US labour-market related releases this week, ending with the key Nonfarm Payrolls report on Friday.

Technical Analysis: Key resistance remains at 1.1660

EUR/USD trades at 1.1642, holding a broadly neutral near-term stance as it consolidates near the top of the recent trading range. The Relative Strength Index (RSI) shows a balanced momentum, while the Moving Average Convergence Divergence (MACD) has slipped marginally below zero, hinting that upside attempts may continue to meet supply as price approaches higher levels.

The technical picture is little changed, with Euro bulls capped below the mentioned range top, at 1.1660 (May 18, 27, and 28 highs). Above here, the next targets are the May 14 high, at 1.1720, and May's peak, in the 1.1790 area. Bearish attempts, on the contrary, are likely to find support at Monday's lows, near 1.1610, ahead of the range bottom, in the 1.1575 area.

(The technical analysis of this story was written with the help of an AI tool.)

Economic Indicator

Core Harmonized Index of Consumer Prices (YoY)

The Core Harmonized Index of Consumer Prices (HICP) measures changes in the prices of a representative basket of goods and services in the European Monetary Union. The HICP, – released by Eurostat on a monthly basis, is harmonized because the same methodology is used across all member states and their contribution is weighted. The YoY reading compares prices in the reference month to a year earlier. Core HICP excludes volatile components like food, energy, alcohol, and tobacco. The Core HICP is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as bullish for the Euro (EUR), while a low reading is seen as bearish.

Economic Indicator

Harmonized Index of Consumer Prices (YoY)

The Harmonized Index of Consumer Prices (HICP) measures changes in the prices of a representative basket of goods and services in the European Monetary Union. The HICP, released by Eurostat on a monthly basis, is harmonized because the same methodology is used across all member states and their contribution is weighted. The YoY reading compares prices in the reference month to a year earlier. Generally, a high reading is seen as bullish for the Euro (EUR), while a low reading is seen as bearish.