EUR/USD bounces to 1.2340 after 100-pip fall in last two days

• EUR/USD is seeing some profit-taking at the 1.23 handle after a 100-pip fall.
• Dovish ECB minutes soften the euro across the board.  
• German inflation is expected unchanged at 1.5% on Friday at 6:00 GMT. 

The EUR/USD is trading at around 1.2331 down 0.29% on Wednesday as the ECB minutes proved to be rather dovish. 

After a drop of almost 100 pips since Wednesday, the EUR/USD pair has found some support at the 1.23 figure. The pair is bouncing from the psychological figure and is currently almost testing the 50% retracement level from daily highs.

The ECB minutes released earlier on Thursday were dovish as the members broadly agreed that there is not enough evidence that the inflation is sustained. If there is not enough evidence of inflation the ECB cannot raise interest rates. The news was largely seen as euro negative across the board. A little after the minutes, in a speech, ECB’s Coeuré said that: “current monetary policy stance is appropriate”, and adding that “potential growth has not fallen by as much as we thought. It may imply that neutral rate of interest might be higher than is commonly estimated.” Adding pressure to the EUR was also the worse-than-expected industrial production data which came out earlier. 

On the other hand, the USD strengthened since Wednesday with the recent hawkish data coming from the US with the annualized core inflation at 2.1% now above the Fed’s target which is set at 2%. This gives the Fed a good justification to hike rates three times this year according to analysts at ING. Meanwhile, the FOMC minutes for March were also hawkish showing that all members agreed that it was appropriate to gradually increase interest rates. 

Earlier on Thursday the weekly US job and the Import/Export data where largely overshadowed by the ECB’s minutes.  

Looking ahead on Thursday, Neel Kashkari, a voting member on the FOMC, will deliver a speech at 19:00 GMT while on Friday at 6:00 GMT the German Harmonised Index of Consumer Prices over the year to March is expected to stay stable from previous month at 1.5% according to forecast. 

EUR/USD 4-hour chart

The short-term trend is rather bearish. Resistance is seen at 1.2347 swing low and the 1.24 figure. Support is seen at the 1.23 figure and then at 1.2260 swing low.