Today, forecasts for the US inflation may meet the reality and the price growth may slacken for the first time since August 2021. If the predictions come true, it will mean that the US economy has started to stabilize. Under the current conditions, the news may strongly encourage market participants, who are likely to begin buying the greenback as a currency of the country whose economy looks better compared to other countries.
US Inflation Rate
Notably, the US dollar has been gaining in value since the end of spring-early summer of 2021, when it became obvious that the Fed would tighten its monetary policy. As a result, the regulator has launched the biggest program of the key interest rate hike in the last decades. However, a rapid rise in the benchmark rate was driven by surging inflation. Before the recent FOMC meeting, most analysts had expected the Fed to raise the benchmark rate by 0.75%. Nevertheless, if inflation starts slackening, the US regulator may decide to tighten its monetary policy at a slower pace. The Fed may start raising it by 0.25% instead of 0.50% and not at every meeting. Although by the end of the year, the interest rate will be higher than now, it will hardly be as high as expected earlier. Two months ago, the US Fed published its forecasts for the key interest rate for the end of the year. It foresees the benchmark rate within the range of 2.00%-3.00%. Judging by the inflation growth pace, most analysts supposed that the key interest rate would hit the upper limit of the range. In case of slower inflation, the benchmark rate may hit only the lower limit. This, in turn, will have a negative influence on the US dollar since traders have priced in a bit higher interest rates.
Thus, we may see the following picture. Once the US discloses inflation figures, the US dollar will start gaining in value, but then it may decline. Curiously, the drop could be rather prolonged. Meanwhile, a decrease in the pound/dollar pair became slower after the price approached the support level of 1.2250. As a result, the pair rebounded and stagnated.
On the four-hour chart, the RSI technical indicator is moving in the lower area of 30/50. This action is reflecting traders' high interest in short positions. On the daily chart, the indicator is moving is the oversold area, thus pointing to the inertial movement.
On the four-hour chart, the Alligator's moving averages are heading downwards despite stagnation. The moving averages are not intersecting each other.
Outlook
The price stagnation is just a local phenomenon. Under the current conditions, the key levels are located at 1.2250 – a support level and 1.2405 – the recent rebound's peak.
In terms of the complex indicator analysis, we see that technical indicators are signaling mixed opportunities on the short-term, intraday period due to the flat movement. On the mid-term period, the indicator is providing sell signals amid the downward movement.
