According to the minutes of the April meeting of the FOMC, a group of officials appeared in the Open Market Committee, ready to discuss the issues of curtailing the $120 billion program of quantitative easing in case inflation and unemployment move quickly towards the targets set by the Fed. The news was the first sign, and although most of the Federal Reserve officials, including Jerome Powell, believe that the time has not yet come to scale down QE, sooner or later the Central Bank will have to do it. Information about the curtailment of the asset purchase program may appear in the summer, which promises to be hot!
Despite the impressive rise in inflation and the hawkish signals from the minutes of the last FOMC meeting, the nominal rates of the US debt market are in no hurry to move upward, which is contributing to the decline in real bond yields and the weakening of the US dollar. At the same time, the release of data on the personal consumption expenditure index for April looks like a key event of the week by May 28. The indicator is the focus of the Fed's attention. And the acceleration of the base PCE from 1.8% to 2.8% YoY predicted by Bloomberg experts could be a shock for financial markets.
Dynamics of real yields on Treasury bonds and the US dollar
At the same time, if investors were only briefly afraid of a rise in consumer prices to 4.2%, then why should they be afraid of a crackdown on the Fed's target indicator? There are rumors in the market that only a long period of its stay above the 2.5% mark will be a cause for concern for the Central Bank. We are talking about a six-month period. It should be noted that the PCE has fallen short of the Fed's 2% target since 2009.
Dynamics of the personal consumption expenditure index
While the US dollar is dealing with its troubles, the euro is growing, looking at the positive macroeconomic statistics in the eurozone. Producer prices in Germany have accelerated to their highest level in almost 10 years, which increases the likelihood of aggressive rhetoric from the ECB hawks at the June meeting, and business activity in the eurozone continues to grow. This time at the expense of the service sector, which has long been in the shadows due to lockdowns. Nevertheless, the accelerated vaccination and the gradual opening of the economy have a positive effect on this area and allow us to count on the rapid growth of the GDP of the currency bloc in the second quarter, which is good news for the EUR/USD bulls.
The manufacturing sector has given up somewhat, but this is not at all surprising given the supply disruptions that exist around the world. The main thing is that the composite purchasing managers index of the eurozone continues its upward movement, faithfully serving the single European currency.
Technically, the Wolfe Wave 5-0 and AB=CD patterns continue to be realized on the EUR/USD daily chart. The target for the first of them is located near the level of 1.23, for the second - at 1.243. The upward movement of the pair is gaining momentum, and we just have to catch pullbacks in order to correctly enter long positions.
EUR/USD, Daily chart
