The Greenback Gets a Boost from Inflation Numbers

 Fed Meeting Eyed for Next Direction

by Bogdan Giulvezan

Last week’s inflation data gave a surprising boost to the US Dollar, as Thursday’s report showed the CPI and the Core CPI had improved 0.6% (expected 0.4%) and 0.7% (expected 0.5%), respectively. As a result, the US Dollar posted the biggest weekly gain in about a month and EUR/USD was rejected at resistance. The pair is now on a bearish path, testing the 50 days Moving Average.

The Fed will meet this week to discuss monetary policy and while some members believe it’s time for the central bank to start discussing tapering of bond-buying, the majority of investors still think that policymakers will continue the bond-buying at its current pace for a bit longer.

Key Events for the Week Ahead

The Fed Meeting will be the main event of the week but before that, the US Dollar will be affected by the Retail Sales numbers, which come out Tuesday, June 15 at 12:30 pm GMT. The Core version (excludes automobiles from the calculation) is expected to show a 0.4% change (previous -0.8%) and the “vanilla” version is expected to drop -0.6% (previous 0.0%). The importance of these indicators comes from the fact that retail sales represent the main gauge of consumer spending, which in turn accounts for the largest part of the entire economic activity. Better than expected numbers show economic expansion and usually strengthen the greenback.

Wednesday, June 16 at 6:00 pm GMT, the FOMC will announce the Economic Projections regarding inflation and economic growth for the next 2 years and will release a Statement that contains the interest rate decision (currently <0.25% and not expected to change) and commentary about the reasons that determined the decision. The impact of the FOMC Statement will be significantly higher if it will contain clues about future changes in monetary policy, especially regarding the tapering of the stimulus.

Half an hour later, at 6:30 pm GMT, the usual press conference takes place, where Fed Chair Jerome Powell will read a prepared statement and then will answer unscripted questions from journalists. This second part of the conference can be a major market mover, depending of course on the questions and the Chair’s answers.

Technical Outlook – EUR/USD

The pair is currently trading at 1.2110 after a perfect bounce at 1.2220 resistance that occurred last week. The 50 days Moving Average will play an important role for short-term movement, and will act as support, thus a break would add more bearish pressure and will probably determine more US Dollar bulls to join in.

The MACD lines are moving south and starting to spread apart, showing increased momentum and the RSI is also descending, which may suggest that we will see a break of the 50 MA and a move closer to the 1.2000 – 1.1970 zone of support. The next medium-term direction will be probably decided by this week’s fundamentals, thus caution should be used until the Fed gives us more clues.