Traffic on the roads of Manhattan, New York City, United States of America. Image source: Anton Ivanov © 123RF.com
The Bureau of Labor Statistics in the US released its latest report of headline inflation and the recorded changes to the rate in May.
According to the findings of the report, the inflation rate contracted by 0.2 per cent the previous month, and is currently at the dismal 0.1 per cent. This poses a significant threat from deflation, despite FED's forward-looking economic projections, which were published yesterday as well.
US Inflation Rate. Image source: TradingEconomics.com
The considerable contraction in the price stability that is being observed for the third consecutive month was attributed unsurprisingly to the governmental restrictions, which have been distorting economic activity since the beginning of the pandemic.
Moreover, the significant turmoil that swept across the energy market in the wake of the crisis, which led to the plummeting oil prices, is another reason for the shaken price stability in the American economy.
The energy market has steadied itself since then, and the price of crude is on the rise as a consequence. These conditions are needed to foster a gradual improvement in headline inflation, which is expected to near the 2 per cent symmetric target level around June 2022.
Nevertheless, the ongoing riotous protests across major US cities, which sprang up in the wake of George Floyd's murder, continue to pose a significant threat to the US retail sector.
A protracted civil unrest in the States could impede the expected growth in inflation, which, in turn, would extend the period needed for completing the recovery process.
Despite all of this, however, FED's overall optimistic projections from yesterday have supported the struggling dollar in the short term.
The greenback appears to have reached a new bottom against the Loonie, as the USDCAD attempts to form a new bullish correction.
As can be seen on the 4H chart below, the pair has managed to rebound from the major support level at 1.33700 and is currently attempting to form a breakout above the pitchfork tool's upper boundary.
This behaviour underlines the rising bullish sentiment in the market, which is also accommodated by the increasing momentum that is exhibited on the MACD.
If the underlying price action fails to do so, then a retracement to the support level is quite possible. However, the highlighted hammer candlestick, which is typically found at the lower end of bearish trends, could indicate the commencement of a new Markup.
The candle's emergence there favours the establishment of such a breakout.
USDCAD 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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