Dollar Resumes Uptrend as U.S. Inflation Takes Center Stage

EUR/USD Returns Lower After Timid Attempts to Break Resistance

Last week the Fed added 50 bps to the interest rate but Fed Chair Jerome Powell mentioned during the press conference that “The FOMC is not actively considering 75 bps hikes”. Data released by the U.S. Bureau of Labor Statistics showed that 428K new jobs were created during the previous month, exceeding the forecast of 390K; however, the Average Hourly Earnings dropped 0.3% (previous 0.5%) and the Unemployment Rate stayed at 3.6% (forecast was 3.5%).

On the other side of the pond, ECB officials have been talking about the possibility of a rate hike in July, also mentioning that a weak Euro may hurt economic stability. Robert Holzmann, the current Governor of Austria’s central bank even stated “I think it would be appropriate to take at least two or even three steps. These could be smaller ones, i.e. 0.25 percentage points each.

 Key Events for the Week Ahead

With the NFP and the Rate Meeting out of the way, markets will focus this week on inflation data that’s scheduled for release on Wednesday at 12:30 pm GMT. The Consumer Price Index (CPI) shows the change in the price that consumers pay for goods and services and acts as the primary gauge of inflation.

The Core CPI that comes out at the same time excludes food and energy from the calculation and is regarded by some as a more accurate version. Higher prices may determine the Fed to raise rates more aggressively in an attempt to contain inflation. The forecast for the CPI is a 0.2% change (previous 1.2%), while the Core CPI is expected to show a 0.4% change (previous 0.3%).

Thursday at 12:30 pm GMT the Producer Price Index (PPI) comes out, showing changes in the price charged by producers for the goods and services they offer. It has inflationary implications because a higher price charged by producers will eventually be passed on to the consumers. The anticipated change is 0.5%, while the previous was 1.4%.

Technical Outlook – EUR/USD

The pair is currently trading at 1.0515 after a small bounce that confirmed 1.0635 as resistance (the level acted as support back in March 2020). However, the downtrend is still in full swing and now the pair looks to break through the previous low and support zone located at 1.0470.

Unless surprises happen on the fundamental scene, the minor support at 1.0470 will likely be broken soon, and the pair will be headed towards the support zone at 1.0350. This zone was last touched back in 2017, so it’s unclear how the price will react if it gets there. For now, the main bias is bearish but this doesn’t exclude minor swings to the north.