USD Strengthens Sharply after Inflation News


Yesterday’s publication of producer price indices in the US was a surprise:
→ Core PPI: actual = 0.3%, expected = 0.2%.
→ PPI: actual = 0.6%, expected = 0.3%.

Higher producer prices indicate that high inflation may remain longer than expected. And this reduces the likelihood of the Fed easing monetary policy. Markets now price the likelihood of a Fed rate cut in June at 60%, up from 74% a week earlier, according to CME’s FedWatch tool.

The reaction to the news was that the dollar strengthened — there was a bearish day on the stock market, and currencies paired with the USD also fell in price.

Thus, the EUR/USD price decrease yesterday was about 0.55% per day.

On March 11, we wrote that the price of EUR/USD may fall to the lower border of the channel (shown in blue) from the 8-week peak (B). In fact, the price made a bearish breakout of this channel.

The EUR/USD chart today shows:
→ the ascending channel loses its relevance. Bears can form a downward channel in turn — the red lines on the chart indicate its approximate contours;
→ the price of EUR/USD dropped to support 1.087 (we wrote about it on March 11). Also in this area there is support from the Fibonacci level of 50% of the growth A→B.
→ level 1.092 may resist the bulls’ attempts to restore the EUR/USD price.

The FOMC meeting will take place next week (Wednesday). It will provide information on how the Fed perceives the latest inflation news and will adjust market sentiment regarding rate cuts. It is possible that hawkish statements will be made, and the US dollar will strengthen even more — while the price of EUR/USD may fall closer to the important support of 1.08.

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