The US currency weakened at the end of the week following US macroeconomic data release for April. As a result, it is the second week in a row when the US dollar depreciates against the euro. Earlier this situation took place in February.
Although consumer inflation in the United States in April rose to the highest level in five months, at 2 percent, the market expected an increase of 2.1 percent in relation to 1.9 percent in March. Core inflation increased by 2.1%, which was in line with market expectations, and the main driving force in this inflation category was the increase in prices related to shelter, medical care, education or new vehicles. On the other hand, the general price increase was influenced by energy prices, including gasoline, which rose by 3.1%. Meanwhile, food prices have increased by 1.8 percent, which means a slowdown in inflation from 2.1 percent in March.
Published data from the United States slightly changed the expectations of the interest rate market. Before the data, contracts for the federal funds rate indicated the level of 2.16%, at the end of the year, and after the data 2.115%. As a result, the market still expects the FED to cut its interest rate by the end of the year, as it is currently at the level of 2.40%.
If inflation is maintained at or close to the US Federal Reserve's target, there are currently no arguments for possible further interest rate hikes, which in turn may negatively affect the US dollar. Adding to this the fact that contracts for the euro seem to be oversold, and the contracts for the dollar index may continue to be distributed, the USD may be under pressure.
Chart: EUR/USD, W1. Conotoxia trading platform.
The EUR/USD currency pair has been rising to the upper limit in a falling wedge pattern. This pattern is usually a trend reversal formation. If its upper limit is broken, we can expect a change in sentiment from bearish to bullish.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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