Growth data of American inflation could not support either the EUR/USD bulls or bears pair. Due to the lack of confident inflation growth, the market continued to get rid of the dollar by inertia, so that the price rose to the middle of the 12th figure. But the published figures can be interpreted in two ways, so it is too early to talk about the turn of the southern trend. In addition, today's growth of the pair is due to the fairly confident rhetoric of the ECB representative Hansson, who optimistically assessed the growth prospects of the European economy. Thus, the situation on the pair is uncertain, especially in the light of increasing tensions between China and the United States.
But let's start with macroeconomic reports. The US consumer price index did show a controversial result. In annual terms, it rose to two percent but did not reach the projected level (2.1%). On a monthly basis, the indicator showed a negative trend – instead of the expected growth to 0.5%, the index fell to 0.3%. Core inflation also turned out to be "mixed": if on an annualized basis, the figure rose to 2.1% (as predicted by experts), then on a monthly basis, the core index unexpectedly slowed down to 0.1% (instead of the expected growth to 0.2%).
If we talk about the structure of indicators, the situation is as follows. The positive inflation dynamics is primarily due to the increase in energy prices (by 2.9%) – in particular, gasoline has risen by 5.7%. But many other products have fallen in price. Thus, for the second month in a row, the cost of clothing is reduced (in April – 0.8%, in March – 1.9%), medical services fell by 0.3%, food – by 0.1%. In other words, if energy prices begin to decline, inflation will not be able to keep the pace, as the consumer activity of Americans leaves much to be desired. In particular, the most important indicator for determining inflation – the basic price index of spending on personal consumption in the US – in March slowed immediately to 1.6%, amid weak wage growth.
Thus, today's figures have not shown a clear deceleration of the CPI, but have indicated an alarming trend. I believe that after this release, the White House will increase pressure on the Fed, pointing to weak inflationary results. Let me remind you that US President Donald Trump called on the Federal Reserve to reduce the interest rate by one hundred basis points. His Deputy – Vice President Mike Pence announced similar requirements, focusing on the weak inflation component of NonFarms. Commenting on the growth of wages, he said that the White House "does not see the economy inflationary processes."
It is worth noting that such "wishes" (which are voiced almost in an ultimatum form) has been expressed by Trump since the summer of last year. On the one hand, the members of the regulator show firmness, demonstrating independence from the White House. But on the other hand, the Fed's position has noticeably softened over the past six months: the regulator paused the rate increase process and at least until the end of the year, pledged not to tighten the monetary policy conditions. Jerome Powell, in his rhetoric, "broke away from the team," so to speak, and expressed confidence that the decrease in inflation is due to temporary/seasonal factors. But the other members of the Fed believe otherwise: in their opinion, it is a problem of a systemic nature. Today's figures can only heighten concerns about inflationary trends.
It would seem that taking into account such prospects, buyers of EUR/USD open the way to the North. But in this case, it is necessary to remember the "Chinese factor". Without waiting for the end of negotiations with China, Trump still raised duties on Chinese goods, increasing geopolitical tensions. The States accuse China of abandoning part of the agreements reached in the negotiations (in particular, it is about the reluctance to change national laws for the protection of intellectual property of companies from the United States). So far, the market is not in a hurry to react to this fact with panic, as the negotiations are still ongoing. But if next week, the anti-risk sentiment among traders will increase, the continuation of the Northern dynamics of EUR/USD can be forgotten.
At the same time, it is worth noting that Friday's controversial release helped the EUR/USD bulls to gain a foothold above the resistance level of 1.1220 (the average line of the Bollinger Bands indicator). This suggests that the EUR/USD pair has the potential for its further recovery unless concerns about US-China trade relations return to the market. On the technical side, the pair is fixed above the middle line of the Bollinger Bands indicator. Also, the price is above the Tenkan-Sen and Kijun-Sen lines, which are under the Kumo cloud, thus forming a "Golden Cross" signal, which signals the increased probability of a trend change from the South to the upward one. The nearest resistance level is 1.1275 – the lower boundary of the Kumo cloud. The support is located at the base of the 12th figure, where the middle line of the Bollinger Bands coincides with the Kijun-Sen line.
The material has been provided by InstaForex Company - www.instaforex.com