Mixed US inflation data add odds to potential dollar reversal
After reaching a maximum level since the beginning of April last week, the dollar retraced on Monday, previously breaking upward from below a bearish channel that began in October 2022. An interesting idea now emerges of a bullish breakout as an early signal for the dollar reversal:
For EURUSD, a buy signal emerged, at least in anticipation of a short-term upward retracement: the price made a retest of the general ascending trendline, which should generate some bullish pressure. However, the rally of EURUSD since October 2022 is at stake:
Sellers are unlikely to give up so easily, and the price is likely to return to test levels below the trendline. Within this assumption, shorting the pair from 1.09 can be considered.
The US inflation report last week left a mixed impression. While overall inflation was below expectations, the more important core inflation from the Fed's perspective decreased reluctantly in line with expectations (5.5%). The US unemployment report two weeks ago had an inflationary bias (acceleration in wage growth, decrease in unemployment). The University of Michigan Consumer Sentiment Index released last Friday was significantly below expectations (57.7 points against an expected 63 points), prompting a rise in the dollar index from 102.20 to 102.60. Market participants seemed to increase demand for the dollar as a safe haven asset, as weak consumer sentiment increased recession risks.
Two potential factors for a dollar rally this week are Powell's speech on Thursday and a sudden surge in volatility in the stock markets (VIX index near lows since the beginning of 2022). Although the FOMC meeting is still a few weeks away in June, markets are pricing in a high probability of a pause, which poses risks of a correction in case of hawkish data or corresponding Powell's comments. If expectations for interest rates correct, the dollar should strengthen. This week, investors may also pay attention to the final GDP and inflation estimates for the Eurozone for the first quarter and April, as well as the inflation report in Japan, which will be released on Thursday.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
After reaching a maximum level since the beginning of April last week, the dollar retraced on Monday, previously breaking upward from below a bearish channel that began in October 2022. An interesting idea now emerges of a bullish breakout as an early signal for the dollar reversal:
For EURUSD, a buy signal emerged, at least in anticipation of a short-term upward retracement: the price made a retest of the general ascending trendline, which should generate some bullish pressure. However, the rally of EURUSD since October 2022 is at stake:
Sellers are unlikely to give up so easily, and the price is likely to return to test levels below the trendline. Within this assumption, shorting the pair from 1.09 can be considered.
The US inflation report last week left a mixed impression. While overall inflation was below expectations, the more important core inflation from the Fed's perspective decreased reluctantly in line with expectations (5.5%). The US unemployment report two weeks ago had an inflationary bias (acceleration in wage growth, decrease in unemployment). The University of Michigan Consumer Sentiment Index released last Friday was significantly below expectations (57.7 points against an expected 63 points), prompting a rise in the dollar index from 102.20 to 102.60. Market participants seemed to increase demand for the dollar as a safe haven asset, as weak consumer sentiment increased recession risks.
Two potential factors for a dollar rally this week are Powell's speech on Thursday and a sudden surge in volatility in the stock markets (VIX index near lows since the beginning of 2022). Although the FOMC meeting is still a few weeks away in June, markets are pricing in a high probability of a pause, which poses risks of a correction in case of hawkish data or corresponding Powell's comments. If expectations for interest rates correct, the dollar should strengthen. This week, investors may also pay attention to the final GDP and inflation estimates for the Eurozone for the first quarter and April, as well as the inflation report in Japan, which will be released on Thursday.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.