It is quite obvious that today everything will revolve exclusively around the preliminary estimate of inflation in the euro area, which, by the way, should grow from 4.1% to 4.5%. It is clear that the further growth of inflation, which is already quite high, does not even cause anxiety, but simply panic. However, the market response is not so straightforward. The fact is that officially, the European Central Bank does not intend to do anything about it. Allegedly, the growth of inflation is exclusively temporary, and any gestures from the central bank can only aggravate the situation. In this situation, the rise in inflation will undoubtedly lead to a further decline in the single European currency. After all, other central banks are already taking quite concrete steps towards tightening monetary policy, just with the aim of curbing and even reducing inflation. However, Friday's speech by ECB President Christine Lagarde gave hope that by the next meeting of the ECB's board, the beginning of the process could be announced just to tighten this very monetary policy. In this light, the rise in inflation can be perceived as an incentive for the central bank to move as quickly as possible in this direction, and thereby will just contribute to the strengthening of the single European currency. So the question is pretty simple - do investors still believe in a change in ECB policy or not?
Inflation (Europe):
The EURUSD pair, after the price converged with the support area 1.1160/1.1180, slowed down its downward movement. This led to a technical correction in the market, which was indicated by the high oversold status of the euro.
The RSI indicator in the four-hour period not only left the oversold zone, but jumped to the level of 70. Subsequently, it concentrated on the fluctuation between the levels of 50 and 70, which confirms the corrective course of the price. The RSI crossed the 30 line from the bottom up in the daytime. This is a positive signal for a realignment of trade forces.
The downward trend persists on the daily chart despite the technical correction.
Expectations and prospects:
It is quite possible that the corrective move will end soon. The highest level for bulls is seen at 1.1400. The support area at 1.1160/1.1180 will become the main pivot point again. Re-convergence of the price can increase the chance of its breakout.
Comprehensive indicator analysis gives a buy signal based on short-term and intraday periods due to the corrective course. In the medium term, technical instruments signal a sell due to a downward trend.
