Crowded sidewalk on 5th Avenue with tourists and commuters on a sunny day. Image source: William Perugini © 123RF.com
The Bureau of Labor Statistics in the US just released its economic report covering the observed changes in the Consumer Price Index in July.
The findings of the survey revealed that the inflation rate in the US climbed to 1 per cent over the previous month, which is welcoming news. In comparison, the consensus forecasts were projecting a substantial contraction of the CPI to 0.3 per cent.
US Inflation Rate. Image source: TradingEconomics.com
The welcoming surprise is attributed to a solid increase in food prices, coupled with the positive effect of the government's decision to ease its coronavirus restrictions.
The overall inflation rate surging instead of falling is a sign of sound price stability in the US and is also a necessary prerequisite for robust recovery following the coronavirus slump in mid-March.
Nevertheless, this trend of recuperating prices could be jeopardised by a potential second wave of the coronavirus pandemic, which poses the risk of the reintroduction of more stringent lockdown policies.
At the same time, talks of progress being done in the development of a COVID-19 vaccine, chiefly by Moderna and also by the Russian state, have eased investors tensions.
A resolution to the healthcare crisis would undoubtedly lift the underlying consumer sentiment, which, in turn, would further improve the price stability in the US.
Once inflation reaches FED's desired 2 per cent symmetric target rate, the FOMC would have enough incentives to adopt a more hawkish monetary policy stance, which is why today's results are so promising.
Meanwhile, the EURUSD continues to exhibit a prevailingly bearish outlook, as traders are looking for any signs of 'light at the end of the tunnel' for the reeling greenback.
As can be seen on the 4H chart below, however, the situation is quite different in the short-term. The pair retraced back to the historic resistance level at 1.18000, which is converging with the 50-day MA (in red) and the 30-day MA (in blue).
This relationship entails quite a robust resistance around this level, and the price action would have a difficult time ahead in breaking out above set resistance.
After the price action reaches a new swing high, the retracement is quite likely to get terminated. The immediate effect of this would expectedly be a new trend reversal and the continuation of the broader dropdown's development.
EURUSD 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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