On Wednesday, May 12, by the end of the day, the euro fell 0.64% against the dollar, to 1.2068. Most of the time, the price hovered around the 1.2130 level. The demand for the American currency increased at 15:30 Moscow time after the release of data on consumer inflation in the United States, which significantly exceeded the forecasted values. The yield on ten-year US bonds jumped to 1.70%. The euro fell to the level of 1.2066.
Investors raised the topic of rates again, fearing that to curb inflation, the Fed could scale back its bond buying programs and raise rates earlier than planned.
According to the CME FedWatch Tool, the likelihood of a rate hike in June and September is 9%, in December – 8.8%. Fed Chairman Jerome Powell warned of a short-term spike in inflation and pledged to keep rates unchanged until inflation and labor market targets are met. First, representatives of the US Federal Reserve will start talking about curtailing QE, then they will cut programs, then cancel them, and only then will they begin to prepare the markets for an increase in rates.
Scheduled statistics (GMT + 3)
- At 15:30, the US will present the April PPI and report the change in the number of initial jobless claims for April.
- At 18:00, the head of the Bank of Canada, Tiff Maclem, will deliver a speech.
- Bank of England Governor Andrew Bailey will deliver a speech at 19:00.
The euro exchange rate has stabilized at 1.2065. Against the background of the growth of the euro / pound cross-pair and the decrease in the yield of Treasury bonds, the euro rate recovered to 1.2106. At the time of writing this review, major currencies are trading in positive territory. The single currency ranks first in terms of growth.
Investors overestimated inflation data. Opinions were divided. On the one hand, CPI growth reflects economic recovery. On the other hand, too strong a rise in prices leads to an increase in companies’ costs and a decrease in profits.
The yield on the 10-year bond (US10Y) fell to 1.68%. Key support is at 1.65% per annum. If it fails, everyone will forget about the inflation report until next month. No decisions are made on one report.
The euro is correcting. Resistance is 1.2120, where several levels have accumulated (trend line (3), 45th degree (2), balance line (sma55)). Buyers need to break through 1.2125 and sellers need to keep it. The recovery of the EUR / USD pair is supported by the major euro crosses. The economic calendar for Europe is empty, so it will be easier for buyers to go through it. The target for sellers is at 1.2020.
Summary: The market is recovering after yesterday’s US inflation report for April. It is believed that investors overestimated the data on inflation, as Jerome Powell has repeatedly warned of a short-term surge above 3%. The euro recovered to 1.2106, supported by euro crosses and a decline in Treasury bonds. Resistance is 1.2120, where several levels have accumulated. The faster buyers pass it, the higher the probability of growth to 1.2180. The target for sellers is at 1.2020.
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