Formally, the market behaved quite normally yesterday, and even reacted to the published macroeconomic data. However, the reaction was quite strange. The increase in the producer price index in Europe, from 0.4% to 1.5%, led to a weakening of the single European currency, but so insignificant that it can be viewed through a microscope. Meanwhile, the growth rate of producer prices was expected to accelerate to 1.1%. The previous data was revised up from 0.0%. So the growth is very serious, removing any doubts on the further growth of inflation. Consumer prices will rise, and it will be quite quick. This means that the European Central Bank needs to take care of this issue as soon as possible, or it will be too late. The situation is complicated by the fact that the only measure to contain inflation is the tightening of monetary policy. For example, by raising interest rates. But the European economy is simply not ready for this now. So, it would be logical to see a rather noticeable and serious weakening of the single European currency yesterday, but it did not happen.
Producer Price Index (Europe):
The single European currency showed a fairly good growth that began exactly at the time of the publication of data on applications for unemployment benefits in the United States. They came out noticeably worse than the forecasts. In particular, the number of initial requests increased from 728 thousand to 744 thousand, although it should have been reduced to 675 thousand. The number of repeated requests decreased from 3,750 thousand to 3,734 thousand, with a forecast of 3,610 thousand. As a result, the total number of applications for unemployment benefits remained unchanged. In other words, the labor market recovery has stalled. But this does not mean anything. One cannot draw far-reaching conclusions from just one week of data. But the market reacted much more strongly to this than to the more serious data from Europe. So the speculative component is still extremely large.
Number of re-claims for unemployment benefits (United States):
Today, all attention is focused on producer prices in the United States, whose growth rate may accelerate from 2.8% to 3.5%. Meanwhile, in Europe, the growth is quite substantial. And this is not because of the fact that the very scale of the increase in producer prices is much higher. In other words, inflation has a good growth potential, which will be realized within the next two or three months. However, the Federal Reserve, like the European Central Bank, pretends that nothing is happening. Moreover, the US regulator does not consider the issue of rapid growth of inflation at all, even as a hypothetical problem. This behavior of the regulator, combined with rising prices, is causing a lot of concern, which can lead to a noticeable weakening of the dollar's position.
Producer Price Index (United States):
The EUR/USD currency pair managed to update the local high of April 7 (1.1914) during the previous trading day, where the quote jumped to the level of 1.1927 for a while, but as a result, the volume of long positions decreased.
The market dynamics are still high, which reflects the stable interest from speculators.
If we proceed from the current location of the quote, we can see that after a slight stagnation during the Asian session, the quote again went down, returning market participants to the levels of the previous day.
Looking at the trading chart in general terms, the daily period, it is worth noting that since the beginning of April, the euro has strengthened by more than 200 points.
In this situation, we can assume that the quote will return to the levels of 1.1880-1.1870 for a while. But given the recent upward interest, traders still have a chance to get close to the area of the psychological level of 1.1950/1.2000.
From the point of view of a comprehensive indicator analysis, it is clear that the indicators of technical instruments at the minute interval signal a sale due to the rollback process. The hourly and daily periods are oriented towards an upward move, signaling a purchase.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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