In general, the single European currency remained relatively stable for almost the entire day yesterday. Although there were periodic spikes, their scale was still extremely modest. Moreover, the market returned to its previous values quite quickly. And this is despite the fact that extremely important data on inflation in the entire euro area were published yesterday, even if they are preliminary. The fact is that after the publication of preliminary data on inflation in Germany, there were strong fears that inflation would grow at a slightly higher rate than initially expected. Fortunately, for the single European currency, these fears were not realized, and inflation rose from 1.6% to 2.0%. Of course, we can say that inflation has risen to the target level of the European Central Bank, which means that we should expect an increase in interest rates in the near future. The thing is that the European economy has not yet recovered from the coronavirus pandemic, and it will simply not be able to raise interest rates now. But at the beginning of the year, the European Central Bank openly stated that it perfectly understands the current situation, and will raise the refinancing rate only in the event of a sharp and rapid rise in inflation. Apparently, the situation with consumer prices has stabilized somewhat. So, there is no need to fear any undesirable actions from the European Central Bank. And then, of course, one could expect a steady growth of the single European currency, which never happened. The reason for this behavior is that over the past two months, it has already shown quite strong growth, the main driving force of which was the growing confidence that the European Central Bank will not change monetary policy. And the publication of preliminary data on inflation did not change anything, but only confirmed the sentiments that for a long time contributed to the growth of the single European currency. By and large, it has nowhere else to grow. The inflation data rather did not allow it to fall in price.
Inflation (Europe):
However, we must not think that fears about inflation are completely a thing of the past. Producer prices are being released in Europe today, which may accelerate from 4.3% to 7.0%. And this is according to the most conservative forecasts. There are good reasons to believe that the producer price index will rise to 7.3%. At the same time, producer prices are a leading indicator for inflation. Consequently, inflation will continue to rise. And the only question is how quickly this process will go. In other words, the risks that the European Central Bank will nevertheless raise interest rates this year, in general, do not disappear. And it is likely that the data on producer prices will be the reason for the decline in the single European currency.
Producer Price Index (Europe):
During the upward cycle of May 28, the EUR/USD currency pair managed to come close to the 1.2235 / 1.2245 resistance area, where at first there was a false puncture, and then stagnation, which reflects a reduction in the volume of long positions.
Market dynamics are average, while the speculative ratio continues to grow.
Based on the current location of the quotes, we can see that market participants are showing downward interest, but are still within the boundaries of stagnation, just below the resistance area.
In this situation, we can assume that the price stagnation at 1.2210 / 1.2240 will eventually lead to a new round of acceleration. Following the cycles of price fluctuations, the most optimal trading tactic is the method of breaking through a particular range border. To minimize the risks of a false breakout, it is advised to apply an allowance of 15 points relative to the established boundaries.
From the point of view of complex indicator analysis, it can be seen that the indicators of technical instruments in the minute and hour periods have a variable buy/sell signal due to the price movement along the side channel structure. The daily period, as before, signals a buy, due to the upward cycle from the beginning of April.
