Huber Wine Assembly Line workers. Image source: Wilnora, flickr.com
Inflation in the U.S. continued to soar in October as producer prices showed no signs of easing. This contributed to the mounting selling pressure on the dollar, which has been observed as of late. Have a look at our newest EURUSD analysis to get a better sense of the current market sentiment of the greenback.
The U.S. Bureau of Labour Statistics (BLS) just revealed that the producer prices index (PPI) has increased by 0.6 per cent in October, meeting the market forecasts. The index remains at a decade-long high as headline inflation remains strong owing to elevated economic activity. Nevertheless, the dollar continues to be pressured in the short term.
USDJPY 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
As shown on the 4H chart above, the greenback continues to reel against the Japanese yen in what looks like the beginning of a new downtrend. Despite the formation of a Pennant, which is a type of pattern that is typically associated with likely trend continuation, at the top of the recent uptrend, the price action broke down below the structure's lower limit shortly after its inception.
The price action then closed below the 23.6 per cent Fibonacci retracement level at 113.011 before rebounding from the 200-day MA (in orange). This looks like a temporary pullback before the underlying downtrend can continue to dive lower.
The temporary consolidation of the price action just below 113.011 is likely to be followed by a subsequent dropdown towards the 38.2 per cent Fibonacci retracement level at 112.564. If it manages to break down below it as well, the next likely target would be the major support level at 111.850, underpinned by the 300-day MA (in purple).
Peaking producer prices for the second consecutive month
U.S. MoM Producer Prices Inflation. Image source: TradingEconomics.com
Producer inflation remained at 8.6 per cent in October, registering no changes from a month prior. This continues to be the highest level since November of 2010. Meanwhile, PPI grew by 0.6 per cent on a monthly basis, meeting the consensus forecasts.
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