US inflation did not impress again. The consumer price index has been showing unimpressive figures for the second month in a row, as if "cooling down" after a multi-month growth. And if in August all components of the CPI came out at the level of forecasts, reflecting a slight slowdown in the pace of inflationary growth, today the release was in the red zone. EUR/USD bulls took advantage of this gift of a fundamental nature, organizing a small correction and heading to the middle of the 18th figure. Although yesterday, the situation for the pair was controlled by bears: many factors played in favor of the dollar, including the hawkish comments of some representatives of the Federal Reserve, and the growth of a number of macroeconomic indicators (in particular, the consumer price index).
However, today's publication crossed out all the "developments" of dollar bulls. After all, if the first signs of a slowdown in the growth of inflation, which were recorded in August, could be attributed to some temporary factors, then at the moment we can talk about a certain trend. And this trend allows the Fed not to rush to curtail QE – at least in the context of the September meeting. Moreover, in my opinion, the US central bank will not dare to take this step in October, postponing this issue until the December meeting (there will be no Fed meeting in November). Such a scenario now looks very likely, given the contradictory August Nonfarmes and equally contradictory inflation data.
So, the overall consumer price index in August was at 5.3% (in July-5.4%), coming out in accordance with the forecasts of most experts, who also expected a slight decline. On a monthly basis, the overall CPI slowed down its growth more significantly, reaching 0.3% (in June, this indicator was at the level of 0.5%). This component has been declining for the second month in a row after reaching a peak (0.9%) in June.
The situation with core inflation is much sadder. The core consumer price index, excluding food and energy prices, came out in the red zone on a monthly basis, slowing to 0.1%. This is the weakest result since February of this year. On an annualized basis, the indicator also fell short of the forecast values. Instead of the growth to the level of 4.2% (after the July growth to 4.3%), the indicator rose to the level of 4.0%. This component has also been gradually sliding down for the second month in a row. Thus, basic consumer prices in the United States last month grew at the slowest pace in the last six months, which suggests that inflation is likely to have reached its peak values. And although the CPI may remain at high values in the coming months (against the background of problems in supply chains, shortages of some goods and the recovery of tourist activity), the above figures allow the Fed's hawks to "bury the hatchet" and join the supporters of a wait-and-see position.
But, despite such unimpressive figures, the corrective growth of EUR/USD was quite restrained. Having risen to the intermediate resistance level of 1.1840 (the Tenkan-sen line on the daily chart), the pair retreated again, not daring to conquer new price heights.
This suggests that the greenback retains its appeal against the euro - primarily due to the continuing uncorrelation of the intentions of the European Central Bank and the Fed. According to most experts, the Fed will not deviate from its plans: the QE program will be curtailed until the second quarter of next year, and the rate will begin to rise either at the end of 2022 or in the first half of 2023. Also, do not forget that the August PPI rose to an 11-year high, and the RFE – to a 30-year high. All this indicates that inflationary pressure should continue in the coming months. Such a disposition will allow the Fed, on the one hand, not to rush into action, but, on the other hand, not to deviate from previously declared intentions.
Meanwhile, the ECB showed a cautious attitude at its last meeting, disappointing EUR/USD bulls. The head of the ECB did not say anything about when exactly the pace of asset repurchase under the RERR incentive program will be slowed down. While most of the analysts surveyed expressed confidence that the decision to gradually wind down the RERR will be made by the ECB no earlier than December of this year. And at the same meeting, Lagarde is likely to declare that the RERR will be replaced by an "enhanced" ARR program.
Following the results of the September ECB meeting, it became obvious that the central bank will in any case lag behind the Fed – both in terms of the first steps to normalize monetary policy, and in terms of tightening monetary policy parameters (the first ECB rate increase is expected no earlier than 2024). And although this dissociation was felt earlier, last week it acquired clearer, "tangible" contours.
That is why, despite the continued growth of inflation in the eurozone and the first signs of slowing inflation in the US, the dollar remains "on the horse" in the EUR/USD pair. The formal correction ended as soon as it began, while there is no question of a trend reversal. It seems that the market has come to terms with the fact that the Fed will not turn on the "turbo mode", but at the same time it will probably make a decision on curtailing QE until January 2022. Today's inflation figures did not violate the logic of this algorithm, so the dollar sank rather reflexively, reacting to the "red color" of the release.
Thus, it is advisable to use the current corrective growth of the EUR/USD pair to open short positions, since the weakening of the dollar is likely to be temporary. The first support level (the target of the downward movement) is located at 1.1780 (the Kijun-sen D1 line and at the same time the lower line of the Bollinger Bands indicator on the H4 timeframe). The main support level is still at 1.1650 - this is also the lower line of the Bollinger Bands on the daily chart.