Inflation pressures USD

Inflation pressures USD

2022-12-15 • Updated

What happened?

The US inflation keeps its momentum and rises to 7.5% as of February 10. The US consumer price index is 0.6% m/m versus 0.4% expected. 

Markets are now pricing six rate hikes in 2022 versus five hikes a day before.

Why is it important?

The consumer price index presents a change in the price of goods and services purchased by consumers. It is the main index showing the overall inflation in the United States. 

As inflation is essential for currency valuation and economic stability, the Federal Reserve must act quickly not to lose control over the situation. Therefore, the main question right now is how rapidly the FED will increase the rate on March 16. Until then, the market will use any hints to predict the value of the upcoming increase. 

Technical analysis

Us dollar index, daily chart 

UsDollarDaily.png

We can see that the market does not believe that the FED still has control over the situation as, after worse-than-expected CPI results, the US dollar index barely increases and pulls back after. It looks like the price is ready for a trend line breakout and global trend reversal.

EUR/USD, H4 chart

EURUSDDaily.png

The pair broke through the descending trend line after the ECB hawkish statement, which is now the primary support. Even worse-than-expected CPI data could not send the price below this trend line. Therefore, we assume that the pair will increase rapidly after a short consolidation. Targets for this movement are 1.1480, 1.1530, and 1.1680.

Conclusion

Only FED's extremely hawkish statements and a rapid key rate increase will strengthen the US dollar. Otherwise, the greenback’s uptrend will be over for years. 

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