US inflation data has once again surprised to the upside this week, which should give euro and pound bulls cause for concern.
In today’s video, I discuss today’s US Producer Price Index (PPI) and how this, combined with Tuesday’s Consumer Price Index (CPI), might affect the US dollar, EURUSD, and GBPUSD.
Let’s get started!
Today’s US PPI numbers came in hotter than forecast, which probably seemed expected for those who’ve watched recent trends.
We saw the same upside surprise from Thursday’s US CPI, and it’s not just this week’s data.
The previous inflation readings out of the United States also showed an uptick against forecast numbers, causing concern that inflation may be on the rise again.
Yet, the US Dollar Index (DXY) remains under pressure.
So what’s going on here?
It’s no secret that risk assets, namely equities, have surged higher in recent months.
This is, without question, a liquidity-driven move, which is helping to keep the US dollar suppressed despite the recent uptick in US inflation.
The question is, how long can this last?
If US inflation remains this resilient, the US dollar will react to the upside sooner or later.
An inflated ball pushed underwater remains submerged only if the opposing force is equal to or greater than its own.
I find the DXY in a similar situation.
At some point, the dollar will surface if inflation doesn’t start to slow.
But ultimately, it comes down to the technicals.
For the dollar index, 103.00 remains key resistance, with a sustained break above that opening up the 103.50 to 103.80 region.
That would be the first sign the “ball” is trying to surface.
As for EURUSD and GBPUSD, the pound shows more cause for concern than its counterpart, at least for now.
We’ve seen GBPUSD give up the December high as new support, but the final straw for bulls lies in the 1.2770 area.
If that fails on a daily closing basis, expect a decline toward 1.2700 and potentially lower.
The EURUSD is still firmly above the 1.0900 confluence of support as of this writing, with a sustained break below that exposing 1.0800.
Of course, the alternative is EURUSD and GBPUSD holding above their respective support areas.
I’m not convinced by last week’s moves from these two pairs, but I’m also not rushing into any shorts without confirmation on the daily time frame.
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