FX.co ★ Hot forecast for 05/31/2021

The first significant event of this week will be the publication of preliminary data on inflation in Europe. But they will be released tomorrow, while preliminary data on inflation in Germany and Italy will be published today. And since we are talking about the first and third economies of the euro area, they are naturally of great importance for pan-European inflation. Inflation in Italy is expected to accelerate from 1.1% to 1.5%, while in Germany it should rise from 2.0% to 2.3%. So in Europe, we are still talking about accelerating inflation, which makes the probability of tightening the monetary policy of the European Central Bank more and more high. However, if we recall the recent report on producer prices in Italy, then there is a possibility that inflation may grow slightly stronger in the third economy of the euro area. In other words, there are still risks of a stronger increase in inflation, which practically removes all questions about the ECB's succeeding actions. Especially if inflation eventually rises above 2.0%. According to forecasts, tomorrow it should accelerate to this value. In general, the market may begin to increasingly fear that the ECB will soon raise the refinancing rate, although the European economy is clearly not ready for such a step yet. And here it is necessary to note the fact that the overall strengthening of the euro for the past two months was largely due to the reduction of such concerns, as the rate of inflation growth clearly slowed down, and the appearance of stabilization of the situation was created. This allowed investors to assume that the ECB would leave things as they were. Thus, if inflation in Germany and Italy grows slightly stronger than expected, then the euro will almost immediately begin to lose its position, just on the growth of concerns about an increase in the refinancing rate.

Inflation (Germany):

The EURUSD pair showed quite high activity last Friday, which led to the formation of a V-shaped pattern. It should be noted that the formation is considered complete, and the quote ended the trading day in the area of 1.2200 - a high.

Market dynamics, as before, have signs of acceleration, which is confirmed by the structure of trading candles, as well as a high coefficient of speculative transactions. If we proceed from the quote's current location, then we can see a local stagnation with a range of 1.2180/1.2205.

In this situation, it can be assumed that the existing stagnation may become a catalyst for trade forces, which will interest speculators. The work in this case will proceed from the points of price retention outside of a particular stagnation limit of 1.2180/1.2205. In simple words, we identify the outgoing impulse relative to the deceleration.

From the point of view of complex indicator analysis, we see that the indicators of technical instruments on the hourly and daily timeframes signal a buy, while the minute intervals have a variable signal due to stagnation.