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Forex Traiding

all the attention is on American inflation



DATE OF PUBLICATION: 2021-01-12 23: 14: 43The US dollar index slowed down its growth today, and at the end of the American session on Tuesday it turned down altogether. After several days of strengthening, the American currency began to gradually give up its positions throughout the market. The dollar pairs react differently to the general weakening of the greenback: the dollar sank noticeably against the pound, while the American behaves somewhat more modestly against the euro. Nevertheless, the general trend can be traced with the naked eye: the “post-New Year” impulse has dried up, while the current fundamental background does not contribute to the development of the dollar rally. To assess the prospects for the dollar in the context of the eur / usd currency pair, one should first figure out what triggered the January greenback growth? In my opinion, there are two main reasons. Firstly, this is an increase in anti-risk sentiment, and secondly, an increase in the yield of Treasury bonds. Let’s start with politics. Last week, anti-risk sentiment increased markedly on the market, amid high-profile events in Washington. The storming of the Capitol, which killed five people, provoked a worldwide public outcry. Considering the unprecedentedness of the current situation (recent history knows no such cases), the market has increased the demand for a “safe” dollar, which is used by traders as a protective tool. The loudest and most tragic events took place last week, while at the moment we feel only their “echoes.” Representatives of the Democratic Party took advantage of the situation and initiated the issue of removing Donald Trump from power. Late tonight (possibly already during the Asian session on Wednesday), the Democrats will vote on a resolution recommending that the US Vice President apply the 25th Amendment to the Constitution (which allows high-ranking White House officials to remove the head of state from power under certain conditions). But this is a knowingly losing game: Mike Pence has already made it clear that he will reject the above resolution, which is of a recommendatory nature. In this case, the Democrats will launch the impeachment procedure – for this they have the necessary number of votes in the lower house of Congress. However, this is obviously a losing option. The impeachment procedure itself is quite lengthy, while Trump’s cadence ends in a week, on January 20. In 7 days, Democrats need to have time not only to pass the document in the House of Representatives, but also to approve the indictment in the Senate, “luring” 17 Republicans over to their side. In the upper house of Congress, the Democratic Party has 50 “bayonets” out of 67 needed. At the same time, the next calendar meeting of the Senate is scheduled for January 19. The market quite reasonably came to the conclusion that the actions of the Democratic Party in Congress are more populist in nature – the likelihood of impeachment implementation is rather small. Therefore, dollar pairs (including the eur / usd pair) were quite calm about the ongoing political battles in Washington. The degree of incandescence has noticeably decreased, despite the fact that an emergency regime was introduced in the US capital. But in this case, we are also talking about preventive measures: the White House decided to take care of the safety of participants and guests of Joe Biden’s inauguration. In other words, the “political” fundamental factor decreases its influence, due to gradual de-escalation. Another fundamental factor that serves as a stronghold for dollar bulls associated with the expectation of large-scale fiscal stimulus. In one of his speeches, the newly elected US President announced that the US economy will receive “trillions of aid” during his tenure. It is worth recalling here that last year, the Democratic Party proposed a $ 2 trillion 800 billion additional aid package. But Donald Trump and the Senators strongly opposed such a generous proposal. Now the situation has changed dramatically: from January 20, Democrats will control both houses of Congress and the White House. This suggests that now the Republicans will not be able to block the legislative initiatives of the Democratic Party. Against the backdrop of such prospects, the yield on Treasury bonds began to actively grow, pushing the dollar upwards. Nevertheless, in my opinion, the January strengthening of the dollar is corrective in nature. Speaking directly about the euro-dollar pair, here the dollar bulls could not even approach the support level of 1.2110 (the lower line of the BB indicator on the daily chart). Therefore, as soon as the southern impulse for the pair faded away, the eur / usd bears seized the initiative and returned the price to the borders of the 22nd figure. In general, the focus of traders’ attention will gradually shift from the political arena to economic indicators. High-profile political events eclipsed Nonfarma, which was released late last week. The data on the American labor market was disappointing: in particular, the number of employed in the non-agricultural sector fell by 140 thousand. This indicator showed negative dynamics for the first time since April last year. Key data on the growth of US inflation is due on Wednesday. If, following Nonfarms, traders are disappointed by this macroeconomic report, the greenback’s vulnerability will increase in many ways, especially in tandem with the Australian dollar. According to forecasts, the general consumer price index should grow slightly – both on an annualized basis and on a monthly basis (+ 0.4% m / m + 1.3% y / y), but the core index, excluding food prices and energy carriers, on the contrary, should show negative dynamics, dropping to 0.1% on a monthly basis and to 1.5% on an annualized basis. If both components of the release are in the “red zone”, the greenback may be hit by a wave of sales. It is advisable to make trading decisions on the pair based on the results of this release. In the mid-term, the northern trend of eur / usd remains in force. Buyers defended the lower Bollinger Bands line on the daily chart, so the current growth of the pair looks quite logical. Any corrective price downturns can be used to open longs (provided that the price does not go below 1.2110). The first target of the northern movement is the level of 1.2250 (Tenkan-sen line at D1). The main target is located above – at around 1.2330 – this is the upper line of the Bollinger Bands on the same timeframe. Material provided by InstaForex – www.instaforex.com Source – InstaForex

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