Dollar Falls After Inflation Data: Is a Change in Medium-Term Trends on the Horizon?

The second consecutive decline in the US core consumer price index caused a sharp drop in the American currency across the board. For instance, the GBP/USD pair rose by 120 points within a couple of hours, attempting to strengthen above 1.2800. The EUR/USD pair closed Monday's “price gap” and tested 1.0850, while the USD/JPY pair briefly traded below 156.00. However, a change in medium-term trends remains highly uncertain. The Fed meeting and the publication of an updated economic forecast by the US regulator allowed the dollar to quickly recover some losses.

From yesterday's Fed statement:

• The target range for the federal funds rate remains at 5.25–5.50%;
• The median forecast by FOMC members suggests one and a half rate cuts for the federal funds rate (compared to three in the March forecast).

From the published data, it can be inferred that the Fed maintains a fairly hawkish stance, which could support buyers of the US currency.

GBP/USD

The GBP/USD pair fell just short of updating the current year's high at 1.2895 by several dozen points. Technical analysis of the GBP/USD pair indicates that the price has returned to the multi-day flat corridor of 1.2820-1.2700. If GBP buyers fail to hold 1.2800 as support, the price may drop to 1.2750-1.2700. Updating the yearly highs could lead to a test of 1.3000. Factors that may influence the pair’s price include:

• Today at 15:30 (GMT +3:00) - Initial US jobless claims;
• Today at 19:00 (GMT +3:00) - Speech by US Treasury Secretary Janet Yellen;
• Today at 15:30 (GMT +3:00) - US Producer Price Index (PPI).

USD/JPY

The pair almost tested the announced levels yesterday and is trading near 157.00 again. Technical analysis of the USD/JPY pair on the H4 timeframe shows the formation of a “bullish engulfing” pattern, which may lead to a test of the 157.70-157.40 range. This pattern would be invalidated if the price drops below yesterday's low of 155.70.

Prepare for increased volatility in the pair tomorrow morning: at 06:00 (GMT +3:00), the Bank of Japan will announce its rate decision.

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