Yesterday we saw a literal exemplary market reaction to the US inflation report. This once again confirms the fact that inflation data are fundamental for investors and have a much greater weight than any other factors. At the same time, the data came out slightly worse than forecasted, as the growth rate of consumer prices, which should have accelerated from 1.3% to 1.5%, increased only to 1.4%. Nevertheless, this is still an increase in inflation, while there deflation has accelerated in Europe. And the single European currency as a whole looked relatively overbought, and was at rather high values for a long time. So, in the end, we witnessed a significant appreciation of the dollar.
Inflation (United States):
The rise in inflation in the United States sets the general trend for the dollar's appreciation, and today's data on industrial production in Europe, at best, can temporarily halt this process. The rate of decline in industrial production should slow down from -7.7% to -7.2%. At first glance, this is quite good for itself amid the current conditions. After all, there is an upward trend. However, do not forget that the industrial decline in Europe has lasted for twenty-one consecutive months. Today's data will only show that it has been ongoing for twenty-two straight months. So there is nothing good here. And you can't blame everything on the consequences of the spring quarantine introduced due to the coronavirus epidemic. The European industry has been facing a crisis long before the pandemic. Obviously, this fact will not help the euro strengthen its position. Nevertheless, even a slight growth in industry may provide the euro with a little respite.
Industrial production (Europe):
The dollar might grow during the US session. Prices could provide help. But not consumer goods. We are talking about producer prices, which are currently falling by -0.2%. So, the decline in producer prices should be replaced by an increase of 0.4%. And most importantly, this points to the prospect of further inflation growth. Therefore, if forecasts are confirmed, then the dollar will indeed have every reason to grow further.
Producer Price Index (United States):
The euro/dollar pair completed the correctional course with an intense downward movement, which led to developing the price level of 1.1810 as resistance. The recovery relative to the correction is 46%, which benefits sellers in terms of developing the downward movement.
If we proceed from the quote's current location, we can see that there is a local stagnation of 1.1725/1.1750, which repeats the range where trading forces interacted last week.
Acceleration is recorded in relation to market dynamics, which is considered a justified phenomenon after a sharp slowdown on Monday.
Looking at the trading chart in general terms (daily period), you can see the first attempt to restore the downward tact in 2.5 weeks. We still need to gain a foothold below 1.1700 in order to confirm the recovery theory.
We can assume that price fluctuations within the values of 1.1725/1.1750 is a temporary phenomenon and will soon lead to another round of acceleration, where the best trading tactic is the method of breaking through established boundaries.
From the point of view of complex indicator analysis, we see that the indicators of technical instruments on the minute and hourly intervals indicate a sell signal due to the recovery process. The daily period is in a neutral phase in terms of indicators of technical instruments.