Today, all eyes will be turned to the ECB meeting. In fact, the results of the meeting are of minor importance. The regulator will hardly change its monetary policy. However, the speech provided during the press conference will attract a lot of interest.
In particular, everybody wonders whether Christine Lagarde will tackle the issue of dropping consumer activity. After a surge in consumer prices, the eurozone retail sales tumbled. Notably, this surge led to deflation. A decline in retail sales is so large that even rising inflation will hardly offset it. In other words, companies' income continues declining even amid surging prices. Thus, unemployment is likely to increase and consumer demand may nosedive. The overall situation is rather gloomy.
If the ECB says that it is closely monitoring the current situation and is ready to take urgent measures if necessary. Investors may consider this as a signal of further monetary policy easing, which will be surely done by means of the extension of the QE program.
Moreover, the regulator may even decide to cut the key interest rate. In any case, such changes will hardly have a positive influence on the currency market. Traders may start selling off the euro and other currencies. It means that the US dollar will confidently gain in value again. However, the ECB's President may not mention this problem. It is not a good idea to jump to conclusions judging by the results for only one month. The regulator may take the wait-and-see approach and monitor the situation for some time. If during another month or two, the problem remains the same, the ECB will have to take measures. In this case, the euro will have all chances to advance.
The same concerns are rising around the US dollar. Yesterday, this led to an insignificant fall in the currency. The fact is that the US inflation advanced to 1.7% from 1.4%, whereas economists had expected a smaller rise to 1.5%. In other words, consumer prices in the US are increasing faster than expected.
Nobody can guarantee that this will have no influence on consumer demand. It may begin dropping like in Europe. Importantly, the US consumer prices are growing slower than in Europe.
US Inflation Rate
However, these fears are somewhat exaggerated. The unemployment claims data seems quite positive. Consumer activity will at least remain the same amid rising employment. Economists suppose that the number of the first-time claims may decline to 715 thousand from 745 thousand. The number of continuing claims is forecast to slide to 4,015 thousand from 4,295 thousand. Thus, unemployment is falling. However, traders are likely to ignore these reports as they will be disclosed at the same time as the press conference will begin.
US Continuing Claims
The euro/dollar pair is still climbing from the support level of 1.1830. It may return to the psychological area between the levels of 1.1950. This level may put pressure on buyers. In this case, the pair may resume the downtrend towards 1.1830. However, everything could change if the quote consolidates above 1.1950 on the four-hour chart.
The pound/dollar pair is also climbing from the support level of 1.3800. The pair returned to the lower limit of the psychological level of 1.3950/1.4000/1.4050. This may lead to a slowdown and a drop.