Dollar waits for inflation

13.04.2021 12:07|Conotoxia Ltd Analyst Team

The dollar index remained at 92.1 points on Tuesday, which has not happened in three weeks. Investors are awaiting key economic data that will provide information on the U.S. recovery, including the release of the inflation index.

Investors could expect prices to rise in the face of increased fiscal and monetary stimulus and the reopening of businesses after COVID-19-related closures. The Fed chairman has consistently downplayed inflation risks, saying that price increases will be temporary and that he wants inflation to rise to 2 percent.

Treasury bond yields rose but remained below recent 14-month highs. The US Dollar in the broad market saw a weekly decline of around 1 percent for the first time this year, but there is still room for the US currency to rise as the US economy appears better prepared than others for a strong recovery from the coronavirus pandemic.

The main currency pair EUR/USD for the past five days seems to have formed a local consolidation resembling a symmetrical triangle, where the key resistance may be in the region of 1.1927, while support may fall in the region of 1.1860. Hence, it seems that the market may need a new stimulus to break out of this consolidation and follow a new trend. Theoretical ranges after the breakout, depending on the direction, may be in the area of 1.2000 or at 1.1820. On the other hand, currency pairs GBP/USD or USD/CHF seem to be defending potential supports. These may be the levels of 1.3670 and 0.9210 respectively.

According to the market consensus, in March the consumer inflation in the United States was expected to increase by 2.5 percent in annual terms from 1.7 percent a month earlier. Such a publication would be the highest since January 2020. However, it should be noted that the Fed is prepared for a temporary increase in inflation due to the introduction of the AIT, or average inflation target. This, in turn, would allow for no interest rate changes with temporarily higher price growth. Nevertheless, the Fed may have one more indicator for its monetary policy. It is talking about the percentage of the population vaccinated. James Bullard of the Fed has indicated that if 75 percent of Americans are vaccinated, there could be a discussion about when to start reducing asset purchases. Thus, it may be that an improvement in the epidemic situation will exacerbate the situation on Wall Street by considering tightening monetary policy.


Daniel Kostecki, Chief Analyst Conotoxia Ltd.

Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.

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