June 10 is one of those days when Forex is ruled by emotions and not by logic. The US inflation publication and a press conference following the ECB’s meeting are scheduled for the same time. That intensifies the risk of a volatility surge. How should we behave in this situation? Let’s make a trading plan for the EURUSD.
Fundamental forecast for dollar for today
If the hill will not come to Mahomet, Mahomet will go to the hill. Tired of waiting for their opponents’ attack ahead of the US inflation publication and the ECB’s meeting, EURUSD bulls decided to take action themselves. Just as I expected, they weren’t strong enough to overcome resistance at 1.222. Rushing in is a foolish idea — the euro/dollar quotes returned fast to their start position, and traders are ready to act, anticipating a hot Thursday today.
According to Bloomberg’s estimates, consumer prices will grow from 4.2% to 4.7% in May, but that will hardly change the Fed’s stand. The Central bank still has a reason to think that a jump in inflation is temporary. In theory, a big gap between the pre-pandemic and current employment rates should result in stagnant wages as employers have a big choice. In practice, it’s the other way round. Fearing the pandemic and financial stimuli, the labor market is recovering slower than the economy, and employers have to raise compensation. So, average wages grew faster than expected in April and June.
US average wages
Source: Bloomberg.
The current recession clearly shows the difference between theory and practice and thus adds to market uncertainty. Bloomberg is checking again the patterns of ex-Chair of the Federal Reserve Ben Bernanke that say inflation will rise to 4.7-4.8% in the coming months and then slow down. How will that really be? Also, that pattern doesn’t exclude that CPI will reach 5.5% and then drop to 5% by the end of the year.
Projected inflation in the US
Source: Bloomberg.
So, no one knows what will happen with inflation and if its boost is temporary. That complicates decision making on Forex. The situation gets even more complicated as the US May inflation data will be released when Christine Lagarde’s press conference starts.
The ECB will probably increase the volume of bond purchases compared with the beginning of the year and upgrade GDP, employment, and inflation forecasts. Still, it may believe inflation won’t reach the aim of 2% in 2022-2023. The ECB’s president will emphasize the temporary nature of consumer prices growth and the need to preserve favorable financing conditions. Thus, she will say scaling back the PEPP is too early.
Using dove rhetoric, Lagarde will try to offset the most optimistic forecasts and thus stop EURUSD bulls. Will she manage to do it?
Trading plan for EURUSD for today
I think we should be ready for the EURUSD‘s going on a roller coaster. To open trades on breakouts is very dangerous in this situation. It’s best to let the market react and open positions at the end of Lagarde’s conference. The level of 1.218 will be a kind of redline for the pair.
Price chart of EURUSD in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.
- 11
- 2021
- 7
- Action
- advice
- analysis
- April
- article
- Bank
- BEST
- Blog
- Bloomberg
- Bulls
- Central Bank
- change
- checking
- coming
- comments
- Compensation
- Conference
- consumer
- content
- Current
- data
- Decision Making
- Dollar
- Drop
- Early
- ECB
- economy
- emotions
- employers
- employment
- estimates
- FAST
- Fed
- Federal
- federal reserve
- financial
- forex
- gap
- GDP
- Grow
- Growth
- How
- HTTPS
- idea
- image
- Increase
- inflation
- investment
- IT
- jump
- labor
- Level
- logo
- Making
- Market
- months
- official
- offset
- open
- Opinion
- Other
- pandemic
- Pattern
- president
- press
- Preview
- price
- purchases
- raise
- Rates
- React
- recession
- Risk
- scaling
- So
- start
- surge
- temporary
- time
- Traders
- trades
- Trading
- us
- USD
- Volatility
- volume
- year