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Here Is Why The Dollar’s Sell-Off Did Not Last

U.S. inflation was less than forecast in August which is why the U.S. dollar sold off in a first response to the data. But why did the dollar dip not last and prices in the GBP/USD and EUR/USD reversed course? The answer is that inflation remains generally elevated while the 5.3 percent (YoY) headline and 4.0 percent core CPI are still far beyond the Federal Reserve target. This leaves the argument about whether pandemic-related inflationary pressures are transitory undecided. The Fed may have some more flexibility on when to start tapering but high inflation is till an argument for a more imminent taper decision.

Fed policy makers could eventually wait until December to officially announce a plan to taper asset purchases.

Technically, both GBP/USD and EUR/USD pulled back from short-term resistance zones. The cable reversed course after touching 1.3913 and is now looking at a break of 1.38. Below 1.3780, we look at 1.3730 and further 1.3650. In the EUR/USD we look at a trading range between 1.1840 and 1.1750 as long as bulls are unable to take out the 1.1850-barrier.

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U.S. CPI Data To Underpin Fed Taper Talks?

The U.S. dollar traded slightly lower ahead of today’s U.S. CPI report which is scheduled for release at 12:30 UTC.

If August CPI data shows that inflationary pressures slowed-down, we will see a bearish reaction in the dollar, pushing both EUR/USD and GBP/USD higher. An upside surprise, on the other side, would lead to a stronger dollar as traders pull forward bets on the timing of monetary tightening. At the Jackson Hole Symposium last month, the Federal Reserve led market participants believe that policy makers would wait longer before withdrawing stimulus but there has been speculation in recent days that the Fed may drop a hint of a forthcoming taper announcement at their FOMC meeting next week. This would be dollar-positive. But a hawkish signal will also depend on elevated inflationary pressures.

We could know more in the afternoon.

EUR/USD: The pair was able to stabilize again above 1.18 after testing 1.1770. Above 1.1830 we could see a run for 1.1870-80. Below 1.1790, the pair could test 1.1750.

GBP/USD: Remaining above 1.3750, chances are slightly in favor of a bullish move towards 1.3970. Below 1.3730, the focus shifts to a lower target at 1.3630.

 

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Traders Eye Inflation Reports

Welcome to a new trading week. Traders will likely be eyeing key inflation data from the U.S., U.K. and eurozone this week to shape expectations for monetary policy tightening. The U.S. dollar in the meantime strengthened slightly against other peers, pushing the euro and British pound lower and below crucial support levels.

U.S. inflation is expected to slow down for the first time this year, increasing the chances of a bearish reaction in the greenback. Evidence of slower price growth would warrant the Federal Reserve’s current path for monetary policy, while a higher than forecast inflation reading could generate a bullish reaction in the dollar. The U.S. inflation report is due for release on Tuesday.

EUR/USD

The pair held above the 1.18-barrier until this morning but now that the threshold was breached, we could see the euro falling towards 1.1750 and 1.1730 in a next move. On the topside, we look at a resistance at 1.1880 that could attract sellers. For a bullish breakout, however, we would need to see prices above 1.1910.

GBP/USD: As long as the cable holds above 1.3750, we pencil in higher targets between 1.3950-70.

DAX: After 15700 broke, the index slid lower towards 15400 but if current support levels seen at 15400 and 15250 hold, we anticipate a bullish move back towards 15900.

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U.S. Dollar Jumps On Surprise CPI Data

U.S. dollar bulls rushed in after the surprise U.S. inflation jump, showing the highest inflation since 2008, stirred the debate on how long the Federal Reserve can keep monetary policy ultra-loose. The CPI report topped all forecasts and traders saw the data as putting more pressure on the Fed. The greenback advanced sharply, pushing EUR/USD and GBP/USD towards lower targets.

Traders will now be scrutinizing the testimony from Fed Chair Jerome Powell tomorrow.

EUR/USD

Dollar bulls have pushed the pair lower towards the descending trendline at around 1.1750, the lower barrier of a current downtrend channel. Whether this channel holds, remains to be seen. Falling below 1.1740 could increase bearish momentum towards 1.17 and 1.16. A current resistance is however seen at around 1.19.

DAX: There was nothing to gain for day traders on Tuesday as momentum came to a halt after the index reached a new high slightly above 15800. If the index remains above 15600, we could see an extension of gains towards 15900 and 16000.

Summer is in the markets and given a lower-liquidity backdrop across many markets during the summer months the potential for range-bound conditions is high. We therefore recommend traders staying on the sidelines during these low-liquidity periods, taking a break from the markets and adjusting risk exposure. The next major risk event will be later in the summer with the Jackson Hole Economic Symposium August 26-28.

We will take our annual summer trading break from August 2 to August 20 but will adjust risk exposure even in the month of July.

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U.S. Dollar Vulnerable To Further Losses Ahead Of CPI

The U.S. dollar weakened against most major peers ahead of today’s closely-watched inflation report.

The CPI report is scheduled for release today at 12:30 UTC. For Federal Reserve taper risk to intensify we will need to see an unambiguously upward surprise to CPI data with headline inflation topping 5 percent YoY. If inflation figures are in line or below forecasts, the dollar could be vulnerable to further losses.

GBP/USD: Above 1.3925, it will be interesting whether sterling bulls are able to clear the 1.3950-barrier, the last hurdle before 1.40. The psychological level at 1.40 could serve as a crucial resistance for bulls in the short-term. Remaining however below 1.3920, our focus shifts to a lower target at 1.3770.

EUR/USD: As long as the pair remains trading above 1.1850, chances are in favor of the bulls with higher targets seen at 1.19 and 1.1950.

Elsewhere, the DAX reached a fresh record high at 15817 this morning and as long as the index holds firmly above 15500, there is nothing in the way of a run for 16000.

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Further U.S. Dollar Strength Ahead Of CPI Report?

Today all eyes will be on the U.S. inflation data scheduled for release at 12:30 UTC. Consumer price inflation is forecast to show an increase in April and investors wonder whether rising inflation will force the Federal Reserve to tighten its monetary policy sooner than current guidance suggests. Fed officials reiterated that it’s premature to discuss pulling back monetary support but with the taper discussion coming back at the Fed’s meeting next month when economic projections are due to be released, early positioning could help the U.S. dollar strengthening. A lower-than expected inflation reading however may lead to another rally in risk assets.

Let’s have a look at the technical picture in both USD crosses:

Time for a correction?

GBP/USD

After the pair tested the upper trend channel border between 1.4150-1.4180, a correction wouldn’t come as a surprise. While we see chances in favor of the bears today it will be crucial for the pair to remain below 1.42 in order to test current support levels at 1.40 and 1.39. A breakout above 1.42 however could possibly lead to a test of the February high at 1.4243 and a further run for 1.43.

EUR/USD

In shorter time frames we see a double-top-pattern which could predict upcoming bearish momentum in case of a break below 1.2120. A next lower target would be at 1.2050. For the euro to rise towards 1.2250 we will first need to see a break above 1.2185.

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Investors Shrug Off Rise in U.S. Inflation

U.S. Consumer prices rose more than expected but the slightly higher reading was not enough to push the U.S. dollar higher as investors speculated the rise in inflation was not enough to lead to a change in the Federal Reserve’s policy path. Moreover, a lot of recovery and inflation have already priced into the market with higher taxes now becoming a bigger risk than the pandemic.

The best performer was the euro which rose against the greenback with the EUR/USD trading around 1.1965 this morning, entering a crucial resistance zone. We expect further gains until 1.1980 and possibly even a test of 1.20 before more sellers show up. A higher support is now seen at 1.1890.

The GBP/USD resumed its upward trend after a dip below 1.37 proved short-lived. We see a next bullish target at 1.3840 but recommend sterling bulls to wait for a sustained break above 1.3850 and more importantly above 1.3920 to expect further gains until 1.40 and 1.42. On the downside, the 1.36-support remains in focus.

The DAX continued its consolidation and as long as there is no breakout either above 15300 or below 15200 there is nothing new to report.

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Will CPI Figures Spark Another Upswing in The U.S. Dollar?

Investors poured back into riskier assets which in turn led to a pullback in Treasury yields, a weakening U.S. dollar and thus an upward tendency in both EUR/USD and GBP/USD. The DAX on the other side, was reluctant to extend its upward move and refrained from a test of our next bullish target at 14500.

Today, traders expect higher volatility around the upcoming release of the monthly U.S. inflation data at 13:30 UTC. A higher-than-expected reading could spark another upswing in bond yields and the greenback.

Looking at the technical picture and in case of further USD strength we will mark next lower targets at 1.1820 and 1.1760 in the EUR/USD and at 1.3815 and 1.3780 in the GBP/USD. A break below 1.3770 in the cable could invigorate fresh bearish momentum and send the pair lower towards 1.37.

Conversely, if inflation figures surprise to the downside, we will see a rebound in both major FX pairs. Current resistances are seen at 1.1960 and 1.2050 in the EUR/USD and at 1.39 and 1.40 in the GBP/USD.

We wish you good trades for today!

We wish you good trades!

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Focus On U.S. CPI And ECB Decision This Week

Friday’s U.S. jobs report beat all estimates and showed an increase of 379,000 jobs in February while the unemployment rate dropped to 6.2 percent. Economists expect that the re-opening of services along with a decline in Covid-19 cases will lead to an even stronger job gain in March and in the coming months. The report adds to recent evidence that the U.S. economy is gaining momentum and with the prospects of more fiscal stimulus U.S. stocks advanced and the dollar appreciated.

This week, the focus will turn to U.S. CPI data on Wednesday and the European Central Bank policy announcement on Thursday. Looking ahead, the U.S. dollar’s strength may continue as the outlook for the U.S. economy brightens. U.S. inflation on a year-over-year basis is expected to increase to 1.7 percent from the prior 1.4 percent and that outlook may inspire additional confidence in the economic recovery, bolstering the demand for dollars.

On Thursday all eyes will be on the ECB decision and while there will be no major easing of monetary policy, a decision to step-up bond purchases would have a negative impact on the euro and could thus increase selling pressure in EUR/USD. Given that the jump in the yield on the Eurozone’s benchmark 10-year German Bund is unwelcome by ECB policy makers, stepping up the ECB’s bond purchases cannot be ruled out at this meeting. Conversely, if nothing concrete is announced by ECB President Christine Lagarde, the euro could strengthen following her news conference.

EUR/USD

The euro is currently testing the 1.19-support on its hold and if that level is significantly breached to the downside, we see lower targets at 1.18 and 1.1750. However, given the pair’s oversold situation there are also chances for small rebounds. The 1.2050-level may serve as a current resistance for euro bulls but the euro’s further price action will finally hinge on the ECB’s decision.

GBP/USD

Following the recent sell-off in the pound the pair approaches oversold territory. It will now be interesting whether bearish momentum will be strong enough to push the pair below 1.3770 and further 1.3750, opening the door for a steeper decline towards 1.35. For bullish action to regain strength we must see a break above 1.39 but more importantly above 1.4020.

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U.S. Dollar Held Decline After Weak CPI Data

The U.S. dollar held its recent dip after a weaker than expected U.S. inflation report. While inflation has become a major theme in financial markets, price pressures are set to firm in the months ahead as President Joe Biden pushes for major stimulus and consumer spending is expected to accelerate as more are vaccinated.

Yesterday’s best performer was the British pound which rose towards 1.3870 despite the overbought situation in the GBP/USD. While we still believe that a correction is overdue, traders should follow the trend and mark the 1.39-level as a next higher target. Falling back below 1.3820, the cable could head for a test of 1.38. A lower important support area is currently seen at 1.3760-50.

The EUR/USD was steady around 1.2130 while bullish momentum was not enough to push the pair higher than 1.2144. Chances could be in favor of upcoming bearish momentum now unless the euro breaks above 1.2180. For bearish momentum to accelerate we will watch out for a break below 1.2040.

DAX: Bearish momentum accelerated after the index was not able to climb back above 14040. Short traders were able to book a good profit yesterday. For the upward trend to gain traction again we would now need to see a renewed break above 14100 and further 14200 but as long as the DAX remains above 13300 the overall uptrend should remain intact.

We wish you good trades!

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