The US Dollar ended the week with a strong push across the board after slightly better than expected inflation data. Let’s take a look at the inflation data, then the developments in EUR/USD and GBP/USD.
CPI m/m (Apr.) 0.1%
(click to enlarge; source: forexfactory.com)
Core CPI m/m (Apr.) 0.3%
Headline CPI inflation actually fell to 0.1% from a previous print of 0.2% for March. The god thing is that this is the 3rd straight month of positive inflation, after 4 months of negative inflation. Also, the core inflation reading beat forecasts and climbed above March’s 0.2% reading, to a 0.3% print. This is the highest month to month core inflation rate in 2 years. The CPI data points to a recovery in inflation that might be in-line with FOMC’s projection that the annual inflation rate will be back to 2.00% towards the end of 2016.
The 4H EUR/USD charts shows a market at the crossroad. The bullish trend since 1.0520 in April is now broken after finding resistance last week at 1.1466 and now falling below a rising trendline. Still I think a break below 1.10 will be needed to push the EUR/USD into a bearish outlook. It is still holding above the 200-period SMA. Also, if there is a pullback and price holds under 1.11, we would also have a higher likelihood that EUR/USD is indeed reviving the bearish trend, which would first open up the 1.0520 support pivot. A break back above 1.11 however would suggest a bullish continuation at least to retest the 1.1466 resistance pivot.
The GBP/USD is in a similar situation as the EUR/USD in that it has been rallying sharply since mid-April (from 1.4564, low on the year), and stalled at last week’s high (1.5815). It did make a stronger effort to get back to that 1.5815 high after the BoE minutes, but this attempt fell short.
After the US inflation data, we are seeing it crack that rising trendline and the 100-period SMA in the 4H chart. The RSI also shows a loss of the prevailing bullish momentum.
Now, I am a tad more bullish on GBP than on EUR, so I would limit the bearish outlook on GBP/USD first to the 1.51 handle – that is if it first breaks below 1.54. Also, if there is a pullback I would like to see price hold under 1.56 to improve the outlook towards 1.51. Otherwise, above 1.56, we might see a retest of that 1.5815 high with risk of extending higher towards that 1.60 psychological level.
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