EUR/USD is attempting to launch an attack. The bulls have armed themselves with factors that potentially slow down consumer prices in the US to 4.1% in May and pauses in the process of tightening monetary policy by the Federal Reserve. Against the backdrop of the ECB’s 25 bps deposit rate hike, this creates a favorable tailwind for the euro. Unfortunately, if everything on Forex were that simple, everyone would be making money.
According to Economy Minister Robert Habeck, Germany will be forced to scale back or suspend industrial capacity if Russian gas stops flowing to Europe after 2024. Currently, deliveries are made to countries such as Austria, Italy, Slovakia, and Hungary. If Moscow and Kiev do not sign a new transit agreement, which currently seems highly unlikely, Germany will lose part of its gas supply without any means of compensation. The specter of an energy crisis has once again appeared in Europe, which has dampened the enthusiasm of the bulls on EUR/USD.
However, much will change by the end of 2024. A lot of water will flow under the bridge. At present, investors are concerned about topics such as the release of inflation data in the US, as well as meetings of the Federal Reserve and the ECB. If the figures are close to the projected consumer price index of 4.1% and core inflation of 5.2%, it will mean that the Federal Reserve has far from accomplished its task. A strong labor market and high prices speak for themselves. A 500 bps increase in the federal funds rate since the start of the monetary restriction cycle has proven insufficient to break the backbone of inflation.
The dynamics of US inflation
Interestingly, the rise in unemployment and the slowdown in average wages in May became the main arguments in favor of a pause in the process of tightening monetary policy in June. In fact, a study by the Federal Reserve Bank of San Francisco proves that wages have little influence on prices. Rather, it is inflation growth that leads to increased wage demands from hired workers. This is crucial for the Federal Reserve. The faster the central bank breaks entrenched inflation expectations, the sooner the Personal Consumption Expenditures (PCE) index will return to the 2% target.
Thus, memories of the energy crisis have clipped the wings of EUR/USD buyers. At the same time, the market awaits clues from US inflation data and the Federal Reserve’s meetings. Investors believe in a pause in the monetary restriction process and expect Federal Reserve Chairman Jerome Powell to employ a “hawkish” rhetoric during the press conference following the June meeting.
The dynamics of inflation and average wages in the US
Naturally, before important events, few people want to rush forward. Traders are not in a hurry to open new positions and are closing old ones, resulting in consolidation of the main currency pair.
Technically, on the daily chart, the attempt by the bulls to play the inside bar ended in failure. If the market doesn’t go in the direction where it is expected to, it is more likely to go in the opposite direction. Therefore, it is advisable to set a sell limit order for the euro near $1.074.
The material has been provided by InstaForex Company – www.instaforex.com
EUR/USD is attempting to launch an attack. The bulls have armed themselves with factors that potentially slow down consumer prices in the US to 4.1% in May and pauses in the process of tightening monetary policy by the Federal Reserve. Against the backdrop of the ECB’s 25 bps deposit rate hike, this creates a favorable tailwind for the euro. Unfortunately, if everything on Forex were that simple, everyone would be making money.
According to Economy Minister Robert Habeck, Germany will be forced to scale back or suspend industrial capacity if Russian gas stops flowing to Europe after 2024. Currently, deliveries are made to countries such as Austria, Italy, Slovakia, and Hungary. If Moscow and Kiev do not sign a new transit agreement, which currently seems highly unlikely, Germany will lose part of its gas supply without any means of compensation. The specter of an energy crisis has once again appeared in Europe, which has dampened the enthusiasm of the bulls on EUR/USD.
However, much will change by the end of 2024. A lot of water will flow under the bridge. At present, investors are concerned about topics such as the release of inflation data in the US, as well as meetings of the Federal Reserve and the ECB. If the figures are close to the projected consumer price index of 4.1% and core inflation of 5.2%, it will mean that the Federal Reserve has far from accomplished its task. A strong labor market and high prices speak for themselves. A 500 bps increase in the federal funds rate since the start of the monetary restriction cycle has proven insufficient to break the backbone of inflation.
The dynamics of US inflation
Interestingly, the rise in unemployment and the slowdown in average wages in May became the main arguments in favor of a pause in the process of tightening monetary policy in June. In fact, a study by the Federal Reserve Bank of San Francisco proves that wages have little influence on prices. Rather, it is inflation growth that leads to increased wage demands from hired workers. This is crucial for the Federal Reserve. The faster the central bank breaks entrenched inflation expectations, the sooner the Personal Consumption Expenditures (PCE) index will return to the 2% target.
Thus, memories of the energy crisis have clipped the wings of EUR/USD buyers. At the same time, the market awaits clues from US inflation data and the Federal Reserve’s meetings. Investors believe in a pause in the monetary restriction process and expect Federal Reserve Chairman Jerome Powell to employ a “hawkish” rhetoric during the press conference following the June meeting.
The dynamics of inflation and average wages in the US
Naturally, before important events, few people want to rush forward. Traders are not in a hurry to open new positions and are closing old ones, resulting in consolidation of the main currency pair.
Technically, on the daily chart, the attempt by the bulls to play the inside bar ended in failure. If the market doesn’t go in the direction where it is expected to, it is more likely to go in the opposite direction. Therefore, it is advisable to set a sell limit order for the euro near $1.074.
The material has been provided by InstaForex Company – www.instaforex.com
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