Selling EURUSD with a target of 1.0700 in case US inflation remains high

15 May 2024 33
Selling EURUSD with a target of 1.0700 in case US inflation remains high

Today at 4:30 p.m. (GMT) key US inflation figures for April will be released.


The consumer price index (year-on-year) is expected to come in at 3.4%, up from 3.5% a month earlier.

The value of the core CPI (year-on-year) is forecast at 3.6%. The March value was 3.8%.

That is, as usual, in line with the latest forecast estimates, a slowdown in US inflation is expected.


Federal Reserve Chair Jerome Powell on Tuesday gave a bullish assessment of where the U.S. economy stands now, with an outlook for continued above-trend growth and confidence in falling inflation that, while eroded by recent data, remains largely intact.

"I expect that inflation will move back down ... on a monthly basis to levels that were more like the lower readings that we were having last year," Powell said at a banking event in Amsterdam.


The U.S. central bank head said he believes it remains unlikely that the Fed will need to raise rates.

"I don't think that it is likely based on the data we have that the next move that we make will be a rate hike," Powell said. "It is more likely ... we hold the policy rate where it is."


His comments largely restated those made at his press conference after the Fed's last meeting. Expectations about the Fed's rate decisions remained largely unchanged even as new data showed producer prices rose faster than expected in April, an outcome Powell said was "mixed" because prior data was revised lower.


For now, however, investors continue to anticipate an initial rate cut in September. The Fed's benchmark policy rate has been held steady in a 5.25% to 5.5% range since July, and officials have largely dropped specific guidance on whether that might be reduced this year.


Powell said his outlook was for continued growth and ongoing job creation.

He said he expected the economy to grow about 2% this year, slightly above the Fed's estimates of the economy's underlying potential, with a labor market that remains "very, very strong."


The low joblessness and rising wages seen in 2019 has been cited by Powell before as a touchstone for the Fed.

The prospect of a renewed decline in inflation without a marked economic slowing has all been given a boost, Powell said, by the arrival of immigrants who helped fill a surplus of open jobs and have added to the U.S. economy as consumers.


Summarizing the forward-looking assessments and statements of the Fed Chairman it can be assumed that in the event of the publication of data indicating the opposite, namely the persistence of strong inflationary pressures, the US dollar is likely to strengthen strongly in the short term.


In particular, EURUSD would rush towards 1.0700 in such a scenario.


From a technical point of view, the scenario of a possible weakening of the EURUSD pair is confirmed by the forming divergence of the price with the RSI indicator.


The overall recommendation is to sell EURUSD provided that the value of the US CPI (year-on-year) is more than 3.8% and the value of the core CPI (year-on-year) is more than 4.0%.


Profit on EURUSD sale could be taken at the level of 1.0700. Loss could be fixed at 1.0900.

The amount of possible loss should not exceed 2% of your deposit funds.


This content is for informational purposes only and is not intended to be investing advice.

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