Inflation is Here to Stay

Welcome to a new trading week.

Wall Street analysts say inflation is not transitory, it’s permanent. The sentiment that inflation is not transitory is also echoed by Mohammed El-Erian, the chief economic advisor at Allianz SE, who said elevated inflation and supply-chain bottlenecks are only partly rooted in transitory reasons. He predicted “another year at least of high and persistent inflation.”

With this in mind, the Federal Reserve may have no choice but to pull back on stimulus measures.

The U.S. dollar was firm against the euro but weaker against the British pound.

GBP/USD

The cable extended its advance to a fresh monthly high at 1.3773 on speculation the U.K. Consumer Price Index (due for release on Wednesday) is showing a slowdown in the core rate of inflation. However, a marked slowdown in the U.K. CPI would derail the pound’s recent rally as it provides the Bank of England greater scope to retain its current monetary policy and dampens speculation for an imminent BoE rate hike.

From a technical perspective, chances are in favor of a test of 1.38 and possibly even 1.3850, provided that the pair holds above 1.36. A renewed break below 1.3570 would shift chances in favor of the bears with a lower target seen at 1.3370.

EUR/USD: The euro refrained from a break below 1.1580, at least until this morning. Below 1.1580 we expect the pair to dip towards 1.1550-40. Bulls on the other side will have to wait for a break above 1.1610 to shift the focus to a higher target at 1.1650-60.

DAX

The DAX knew only one direction in recent days: Upwards. The recent break above 15550 could now have paved the way for a test of the 15800-resistance. A break above 15820 could see a renewed test of the crucial 16000-mark. A current support is however seen at around 15300.