Market Analysis

During the early Asian trading hours on Wednesday, the EUR/USD pair is exhibiting a bullish trend around 1.0815. However, market sentiment may turn cautious later in the day ahead of significant economic data releases from both the Eurozone and the US. The key highlights for Wednesday include the first quarter Eurozone Gross Domestic Product (GDP) reading and the April Consumer Price Index (CPI) from the US.

Federal Reserve (Fed) Chairman Jerome Powell's recent remarks on inflation, noting its slower decline than anticipated and the validation provided by the Producer Price Index (PPI) data to maintain higher rates for a longer duration, have contributed to a hawkish sentiment. Powell expressed skepticism regarding the necessity of further interest rate hikes, despite acknowledging reduced chances for rate cuts. Furthermore, comments from Kansas City Fed President Jeffrey Schmid emphasizing persistently high inflation suggest that the US central bank perceives more policy action as necessary.

Nevertheless, the focus remains on the upcoming US CPI data, which could sway the Fed's interest rate decision in the upcoming meeting. Projections suggest a moderation in annual headline CPI inflation to 3.4% in April from the previous 3.5%, with Core CPI expected to decrease to 3.6% from 3.8%. Should the forthcoming CPI figures meet these expectations, the possibility of rate cuts may come into play, potentially dampening the US Dollar and providing support for EUR/USD.

Meanwhile, the Eurozone ZEW Economic Sentiment Survey has offered some temporary support to the EUR/USD pair. The survey improved to 47.0 in May from 43.9 in the previous month, surpassing estimates. Attention now turns to the European GDP growth figures, with forecasts suggesting a 0.3% quarter-on-quarter increase in Q1, while annualized GDP growth is expected to remain steady at 0.4% year-on-year.

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Paraphrasing text from "FX Street" all rights reserved by the original author.