Market Analysis – EURUSD
Yesterday was a day packed with important events and economic statistics which the market continues to analyse today. At the time of the news release, the asset expectedly saw the level of volatility rise to a price range of over 50 pips, measuring 0.42% of the asset’s exchange rate. The Euro originally decreased against the US Dollar, but soon afterwards formed a price correction which today, assumes a higher price than the day before. Today’s price movement has formed a bullish candlestick measuring an increase of 0.21% and attempting to cross yesterday’s price high without finding resistance, or collapsing as the Euro this week has struggled to keep hold of gains when there has been. Today we have no major news scheduled for neither the US, nor the Eurozone, but volatility may remain high as the market continues to scrutinise yesterday’s inflation figures and the European Central Bank’s press conference.
Yesterday’s macroeconomic statistics from the US on consumer inflation, although turned out to be better than forecasts, failed to noticeably strengthen the US Dollar even with high prospects of the Central Regulator taking action to control the statistics. Inflation has now officially reached 5% which is significantly higher than the Federal Reserve’s target and is the highest recorded figure since August 2008, almost 13 years ago during the Banking Crisis. Biggest price increases were recorded for gasoline which rose by over 56% where households will, without doubt, not be happy about, followed by used cars which rose by almost 30% and transportation services which rose by 11.2%, again something which can hurt the lower class deeply.
Traditionally, a rise in inflation can support the local currency as it may lead to a rise in interest rates which again traditionally results in an increase in demand. However, traders seem to be looking to wait and see the stance of the Federal Reserve as in the past three months, they have been unwilling to alter their monetary policy regardless of the increased inflation. The officials at the Central Bank have so far described the current period of high inflation as transitory, meaning it should be around only for the short to medium term. They have expected several months of elevated price increases because of demand and supply chain which currently lags. The Federal Reserve is scheduled to meet on the 15th and 16th June. There is some market speculation that if inflation continues to crease, the Central Bank might move up the time frame in which it would discuss moving away from its easy policies. Economists expect the first step toward easing would be when the officials publicly discuss its decision to cut back on the $120 billion in Treasury and mortgage securities it buys each month, rather than interest rates. However, currently this is all speculation and predictions, the market will be looking closely to see exactly how the Regulator will react.
The European Central Bank continues to keep to its dovish stance during yesterday’s Monetary Policy Statement and press conference with the President. The President advised that the inflation which we are currently experiencing will most likely continue for the rest of the year, but still is predicted as temporary. The President also advised that the levels of inflation was largely due to rises in energy prices, rather than a fair split across the economy, which again she indicated further backs a position not to alter the current policy. This is a similar situation with America and the market is looking to see if the Fed will also take a similar stance
Looking at the US Dollar Index, we can see that currency is currently in a decline after yesterday’s announcement, but has seen a slight increase after nearing a previous support price. The Euro yesterday declined in general, even though the currency saw gains against the US Dollar. Today the price is attempting to recover upwards, but is still far from yesterday’s price highs.