The dollar index shows increased volatility today: at the beginning of the US session, it dropped sharply - in just an hour, the figure dipped from 97.45 to 97.05 points, reflecting the dollar's devaluation throughout the market. This dynamic was due to several reasons - against the background of the release of weak macroeconomic statistics and the sharp fall of the stock market, which pulled the US currency behind it. At the same time, traders actually ignored data on the US trade balance, although the negative balance of trade between the United States and China dropped to the lowest possible level in the last five years.
The EUR/USD bulls took advantage of the situation and attempted to attack the resistance level of 1.1220 (the middle line of the Bollinger Bands indicator on the daily chart). And although the buyers impulsively pierced this target, rising to the level of 1.1250, they hardly manage to stay above the designated level. But even such a price spurt with a subsequent pullback indicates the failure of bulls of the pair. After all, in order to develop a downward trend, sellers need to go below 1.1120 (the bottom line of the BB indicator on D1) to confirm the priority of the downward movement. Otherwise, the bulls at every opportunity will try to return the pair to the price range of 1.1220-1.1310 with subsequent growth targets in the region of the 14th figure.
In this context, today's growth looks quite significant, despite the inability of bulls to consolidate above the Bollinger Bands midline. After all, we should not forget that today, the EUR/USD pair showed correctional growth against the background of unresolved (and, apparently, aggravating) trade conflict between the US and China, as well as against the background of uncertain prospects for Brexit. In other words, the single currency shows character even in the face of rising anti-risk sentiment, while the dollar easily surrenders to the conquered positions, demonstrating its vulnerability in the run-up to tomorrow's release on the rise in US inflation.
However, today there were other reasons for the greenback's devaluation. Thus, the US producer price index (which is an early signal of changes in inflation trends) came out in the "red zone", showing a slowdown. On a monthly basis, the indicator dropped to 0.2% (after rising 0.6% in March), and in annual terms - to 2.2% (with a growth forecast of 2.3%).
Today's release has become another alarming signal on the eve of the publication of key data on inflationary growth in the United States. Let me remind you that last Friday there was a rather weak growth in wages. Contrary to the positive forecasts of most analysts, the indicator remained at the level of March: in monthly terms, it rose by 0.2%, and in annual terms grew by 3.2 percent (which is also worse than forecast). In addition, the inflation rate preferred by the Fed (the price index for the main expenditures on personal consumption - PCE) increased by only 1.6% y/y compared to March - this is the weakest growth rate in the last 14 months. In February, the indicator was also at a rather weak level - 1.7%.
And here again it is worth recalling the May Fed meeting, at the end of which Jerome Powell commented on the slowdown in inflation growth. He suggested that this trend is due to temporary factors, and therefore, key indicators will soon show signs of recovery. Although according to the general opinion of the Fed members, which was set forth in the text of the accompanying statement, the slowdown in inflationary growth is systemic and sustainable. In other words, Powell expressed a more optimistic assessment regarding the prospects for rising inflation (unlike most Fed members), and this fact was in favor of the dollar.
But such a "victory" for dollar bulls is shaky. Inflationary indicators continue to disappoint the market, and tomorrow's release of the US Consumer Price Index can serve as a quintessence of this process. If this indicator comes out worse than expected, then the Fed will find it difficult to justify the current trend by "temporary factors" - the slowdown in inflation indicators will clearly be systemic.
That is why today's publication of the producer price index caused such a violent market reaction. Traders were worried that tomorrow's release would also be worse than expected, and this fact would soften the rhetoric of Fed members and Jerome Powell himself.
From a technical point of view, on the daily chart, the pair is on the middle line of the Bollinger Bands indicator - so to speak, "at a crossroads". As already noted above, EUR/USD bulls need to gain a foothold above the 1.1220 mark in order to subsequently qualify for the 13th figure. For bears, couples have a more difficult task: as long as sellers do not consolidate below the 1.11 target, the downward dynamics will be a big question.
The material has been provided by InstaForex Company - www.instaforex.com