Daily Market Recap – EURUSD Dollar rises after inflation

U.S. consumers faced a third straight monthly increase in prices in June, the latest evidence that the rapidly reopening economy is fuelling pent-up spending on goods and services that, in many cases, remain scarce.

The report released Tuesday by the Labor Department showed that consumer prices rose 0.9 percent in June from May and 5.4 percent year-over-year, the largest 12-month increase since June 2008. Excluding volatile oil and gas prices, so-called core inflation rose 4.5 percent over the past year, the largest increase since November 1991.

The pickup in inflation, largely the result of the economy's rapid recovery from the pandemic recession, has heightened concerns that the Federal Reserve will feel compelled to begin changing its low interest rate policy sooner than expected.

If so, it could weaken the economy and derail the recovery. Fed officials have repeatedly said, however, that they view the surge in inflation as a temporary response to supply shortages and other short-term disruptions, while the economy rebounds rapidly.

The question, then, is whether the Fed can envision that this higher-than-expected inflation is not temporary and see it change its still-accommodating policy more quickly and dramatically. We will certainly have to see a drastic improvement in the unemployment figures for this to happen, but the pressure is mounting.

J. Powell's speech will be all the more expected on Wednesday.

The euro against the dollar remains in a downward spiral with another negative session following the inflation figures. Prices are moving below the 20 and 34 period moving averages with descending lows and highs. The trend is therefore bearish, and the pair could return to 1.1705, complete retracement of the last wave of increase.

(Chart Source: Tradingview 13.07.2021)

To invalidate this negative scenario, the euro must return above the last peak at 1.1882 and especially cross the polarity line at 1.1986 and then the psychological level at 1.2000.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.