The United States Capitol building in Washington DC. Image source: Wasin Pummarin © 123RF.com
The U.S. inflation rose by 0.6 per cent in March, thereby exceeding the initial forecasts marginally. The market was expecting the Consumer Price Index (CPI) to grow by 0.5 per cent over the previous month, picking up from the 0.4 per cent expansion that was recorded in February.
The faster-than-anticipated growth of consumer prices is attributed to the recent energy rally, and specifically the high price of crude oil. Moreover, the robust performance of the U.S. labour market boosted demand in the retail sector, thus driving prices even higher.
U.S. Inflation Rate MoM. Image source: TradingEconomics.com
Headline inflation was also revised upwardly, reaching 2.6 per cent in March, surging from February's 1.7 per cent. The latest findings of the Bureau of Labour Statistics (BLS) therefore exceeded the preliminary expectations, which were anticipating the index to grow to 2.5 per cent.
Even though this performance is inlined with FED's mid-term projections, rising prices have caused some concerns amongst investors about inflation potentially getting out of hand.
U.S. Headline Inflation Rate. Image source: TradingEconomics.com
The immediate market reaction to the news was one of uncertainty. After an initial drop, the EURUSD proceeded to jump by 0.25 per cent in the first hour following the inflation number's publication.
As can be seen on the hourly chart below, the pair appears to be breaking out above the upper boundary of a major wedge pattern. While this suggests continued price appreciation, the breakout may prove to be a fakeout as bears still retain some moderate control.
The subsequently lower waves on the MACD indicator seem to demonstrate waning bullish momentum, which is illustrative of a Divergence in the making. In other words, the price seems more likely to change directions soon.
It would take a retracement of the price to the Wedge's lower boundary and a decisive breakdown below the two moving averages - the 50-day MA (in green) and the 100-day MA (in blue) - for these bearish forecasts to be realised.
In contrast, a throwback to the Wedge's upper boundary followed by renewed price appreciation would confirm the resurgence of bullish pressure in the short term.
EURUSD 1H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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