Based on the recently released data on inflation in the United States, the situation in the West is uncertain. The acceleration of inflation to 4.2% suggests that the target level of the Federal Reserve System (Fed) has been exceeded by half, and whether this will become a short or medium-term phenomenon remains a mystery to investors, which disproportionately puts pressure on financial markets.
The fact that inflation will grow abnormally was known back in 2020 against the background of lockdowns, now we are faced with the manifestation of the low base effect, which has led to an impressive growth rate of economic indicators.
The main issue, intrigue, and fear for investors, as before, remains the Fed's decision regarding the current realities, since everything may eventually come down to the fact that the regulator will have to tighten monetary policy, curtailing the quantitative easing program, and then raising the interest rate.
These actions will lead to the fact that the asset market (stocks, bonds, real estate, raw materials), which has long been overheated due to an ultra-soft monetary policy, may be out of business. In simple words, risky assets will go down, and the entire US background market will follow.
Now you understand what is the concern of investors and the outflow of dollar positions from the market.
To reassure you a little, let me remind you that at this time, the main weapon of the head of the Fed, Jerome Powell, is considered rhetoric, not action. Thus, it is too early to stir up panic, we should at least wait for the next meeting of the Federal Open Market Committee, which is scheduled for June 16.
This week, the minutes of the previous meeting of the Federal Open Market Committee will be published, and it is unlikely that we will hear anything new, but another portion of the rhetoric about inflation is guaranteed to us.
What to expect from the US dollar before the June FOMC meeting? Probably something similar to stagnation with a possible weakening within the acceptable limits, this will be associated with the same risk, fear, expectation, and uncertainty among investors.
Analysis of trading charts
The EUR/USD currency pair has completed the stage of an elongated correction from the peak of the medium-term trend at 1.2349. The recovery of the euro exchange rate in the period of April-May brought us to the levels of February, leaving a gap of just over 150 points before the renewal of the local maximum.
The factor of the high value of the European currency already scares few people, and the renewal of the 2018 maximum is already becoming something normal, although there is nothing normal in this phenomenon.
As short-term expectations, it is worth highlighting a number of price levels, relative to which speculative manipulations in the market are possible.
1.2180 is the recent local high from the upward cycle in April-May of the current year. A breakdown of this value can lead to touching the local maximum of the medium-term trend at 1.2349.
1.2349 - as already highlighted above - this is the high of our medium-term trend, and its breakdown could lead to a surge in speculation towards the high of 2018 (1.2500/1.2550).
Above these limits are the levels of 2014, that is, the structure of the long-term downward trend.
In this situation, an anti-scenario can be expanded, where the Fed will build a competent strategy based on rhetoric, where the sharks and whales of the financial world will unquestioningly follow it, and most importantly, take their word for it. Everything can lead to a change in the upward cycle to a downward one, but at the same time worsen the current situation if the Fed's plans and thoughts imposed on it do not coincide on the basis of the medium-term results.
The GBP/USD currency pair, following its European counterpart, is drawing an upward cycle on the market, ignoring the complex economic problems on the side of the United Kingdom. The recovery relative to the correction course of 1.4224 - - - > 1.3668 achieved almost 100% effect, and a little more than 50 points remained before the update of the local maximum of the medium-term trend.
In fact, we are already at the level of the current year's maximum, and only a natural basis associated with the area of 1.4165/1.4224 is holding back insatiable buyers.
In this situation, there is no need to rush, as the termination of the trade by speculators can be extremely unpredictable.
Let us single out two main levels in relation to which speculative manipulations in the market are possible.
1.4224 – the maximum of the medium-term trend, the breakdown of which will lead to a new round of speculation and, probably, to touch the maximum of 2018 – 1.4350.
1.3950 is the lower deviation of the psychological level of 1.4000 (1.3950/1.4000/1.4050), where keeping the price below it can lead to a natural basis for a rebound from the local maximum, according to the scenario of February 24.
