Meanwhile, as the euro gradually loses ground against the US dollar, ECB data show that inflation expectations among eurozone consumers rose sharply in March, across the board, which is a worrying signal for the European Central Bank.

In the monthly consumer survey, conducted by the European Central Bank, and published today, respondents reported a marked increase in inflation expectations. According to the data, consumers expect prices to rise by 4% over the next 12 months, a sizeable jump from February, when such expectations were only 2.5%. This surge reflects growing consumer concern about the future cost of goods and services.

Expectations over the next three years also show a worrying upward trend, reaching 3.0%, up from 2.5% in the previous survey. That reading is only slightly below the 3.1% peak recorded in October 2022, when inflationary pressure last hit a high. The five-year outlook also ticked up, from 2.3% to 2.4%. These figures indicate that consumers anticipate elevated inflation persisting into the medium and longer term.

Rising inflation expectations can materially affect consumer behavior and central bank decisions. For households, this may mean reduced purchasing power and a change in spending patterns. Persistent increases in inflation expectations are one of the key indicators the ECB monitors when shaping policy.

At present, the ECB is watching closely whether higher energy prices will prompt workers to demand higher wages. Secondary inflation effects, extending beyond fuel and energy, could trigger interest rate increases, although no policy changes are expected at the upcoming monetary policy meeting on Thursday.

Traders are currently pricing in two quarter-point rate hikes this year, starting in June, with an 80% probability of a third. Clearly, much depends on the duration of the Middle East conflict, since talks have not yet produced a durable solution. The longer the conflict continues, the greater the damage it will inflict. Whereas a few months ago commentators spoke of a possible temporary rise in prices, today discussion has turned to potential ECB intervention. We are likely to learn more at the central bank's meeting this Thursday.

The ECB survey also shows a deterioration in consumer economic expectations. Respondents now expect GDP to contract by 2.1% over the next 12 months, compared with an expected 0.9% contraction in February. Expectations for the unemployment rate in a year's time rose to 11.3% from 10.8%.

Technical picture for EUR/USD

Regarding the current technical picture for EUR/USD, buyers should now consider how to take the 1.1730 level. Only this will allow a test of 1.1762. From there, a move to 1.1791 would be possible, but achieving that without support from major players will be rather difficult. The most distant target is the high at 1.1822. In the event of a decline only to around 1.1700, I expect serious action from large buyers. If there is no one there, it would be prudent to wait for a refresh of the low at 1.1670, or to open long positions from 1.1640.