The US Dollar Rose Sharply after Inflation Data. When Is Correction Possible?

FXOpen -

For the second time this year, the US consumer price index turned out to be higher than experts predicted. Thus, in February the figure increased from 3.1% to 3.2%. In March, the consumer price index, exceeding the expectations of economists surveyed by Bloomberg, was at 3.5%. The continued rise in inflation, coupled with a strong labor market, contributed to:

  • Fed representatives are extremely cautious regarding the future direction of monetary policy;
  • market participants are lowering expectations of how many quarters of a percent the rate could be cut this year.

As a result of the current situation, European currencies returned to recent lows, and the USD/JPY pair updated its 2022 high.

USD/JPY

US dollar buyers in the USD/JPY pair managed to move above the important support level of 152.00. The price on the USD/JPY chart rose to 153.20, but further pricing of the pair will depend on the actions of the Japanese regulator. Bank of Japan officials have repeatedly stated that near 152.00 they may resort to foreign exchange interventions to support the national currency. With the intervention of the central bank, the pair may correct to the nearest support levels at 152.00-150.00. At the same time, we cannot exclude continued exponential growth in the direction of 155.00-154.00.

Important for USD/JPY pricing will be today's news on the US producer price index for March and weekly data on the number of initial applications for unemployment benefits.

EUR/USD

Despite the positive data for the US dollar, the EUR/USD pair managed to stay close to the lows of the current year, at 1.0720.

However, today the situation may change dramatically and the pair may leave the medium-term flat corridor of 1.0890-1.0720.

Market participants are awaiting the ECB's rate decision and the accompanying press conference by Christine Lagarde. If the head of the ECB is hawkish, the pair may break through the upper fractal at 1.0880 and test important resistance at 1.1000.

Technical analysis of EUR/USD shows that if the downward trend continues, the pair may move below 1.0690 and continue its downward movement in the direction of 1.0570-1.0530.