On Thursday 10 February, statistics on inflation for January will be published in the USA. Let us look at the reaction of the EURUSD currency pair on this data publication.
The current consensus forecast implies growth of increase in inflation from 7% to 7.3%. To take decisions on the monetary policy, the Fed estimates core inflation which does not include food and energy prices. It is these two categories were the main locomotives of inflation growth for most of the last year. Now the situation is changing and not for the better.
The last report on the labor market published on 4 February showed the created for January 467 000 workplaces in the USA with the forecast of 150 000. Annual growth rate of wages has accelerated from 5% to 5.7% with expectations of 5.2%. There is evidence of a huge free-hand shortage on the labor market. Companies are forced to raise wages to attract the staff. All this leads to tightening of inflationary spiral and transition of price growth from a temporary phenomenon to the more long-term trend.
If before the release of the report on the labor market expectations were limited to the increase in the Fed rate with the standard of +0.25% at the meeting of 16 March, now a possibility of the rate growth immediately by 0.5% raised 30%. Increased likelihood of more resolute actions of the Fed obviously works to the EURUSD decrease.
Technically, the EURUSD currency pair has been moving in the downtrend since May of 2021. In the middle of January, there was an attempt for the upward breakdown and it did not succeed and the trend continued. Last week after the ECB meeting, the euro consolidated with expectations of rate hikes by the European regulator this year. The upward movement overcame the trend line and stopped at the January maximum of 1.1483. Now there is correction to the preceding wave of growth.
We consider the following two options:
1) A sell of EURUSD for the current price. Take Profit: 1.1289. Stop Loss: 1.1483.
2) A sell of EURUSD after the release of statistics on Thursday at 16:30 Moscow time. It is a more reliable option but the profit-making capacity decreases.
In case of the rapid growth after the report release, a position at the level of the January maximum of 1.1483 can be opened.
With the downward momentum after the report release, a position for the current price with the targets of 1.1289 can be opened, with the rapid breakdown of this level, it is possible to retain the part of the position with a perspective to achieve 1.123.