FX.co ★ EUR/USD

Wall Street analysts turned out to be right – inflation in the US fell more than the consensus forecast. This month, consumer prices declined for the first time in six years, and Warsh, reporting to the House Financial Services Committee, did not share any plans regarding an interest rate adjustment. The Fed Chair downplayed the significance of these figures, saying he does not want to attach too much importance to any single indicator. He said he does not consider the mission accomplished and is fully prepared to rein in price growth, which has been high in recent years. Lawmakers asked about possible changes in the Fed’s communication, to which Warsh replied that he intends to be more cautious in his statements, since in his view this is the best way to make decisions. New interest rate projections showed that nine officials forecast one hike this year, six forecast at least two, and another nine expect either no change or rate cuts. As analysts had expected, Warsh refused to present his own forecast. Instead, economists from the independent investment banking advisory firm Evercore ISI did so, stating in a note to clients that “the very favorable June CPI inflation report relieves pressure on Warsh in terms of needing to hike rates in the near term and allows him to position the Fed as an institution firmly committed to returning inflation to target without fueling expectations of a July rate increase.” Thus, the Fed chief has gained room to implement Trump’s wishes without arousing suspicion that he is blindly following the will of his patron. Given these premises, everything points in favor of a rise in the EUR/USD pair. The escalating Middle East conflict in this case does not benefit the overbought dollar, but instead gives the ECB a reason to return to a hawkish stance. Now to the technicals. The small correction that followed the market’s initial brisk reaction to the inflation data was halted by the H4 Kijun line, from which the re-energized bulls bounced. The RSI indicator, sitting around 54, is on their side. The first barrier that still exerts a psychological influence on the bulls is the resistance level at 1.1474 (Murray 6.8). If major players do not take steps to neutralize the excessive impact of the inflation data on the dollar’s exchange rate, it will be broken in the very near future.