Solid News

Euro Strength may be Temporary

8/11/2022 2:36 PM

EUR/USD continues to correct upwards in relation to the long-term downtrend. The day before, the price reached 1.0367 against the backdrop of the release of July data on inflation in the US, which confirmed the slowdown in its growth.

The Consumer Price Index was 0.0% MoM and 8.5% YoY, which was below experts' forecasts of 8.7% and the June value of 9.1%, causing a recovery in the market, as many investors considered that inflation has peaked and the rate of price increase will now gradually begin to slow down. The published statistics, in turn, may correct the actions of the US Federal Reserve: at the next meeting, members of the regulator are likely to increase the interest rate by 50 basis points, instead of 75 basis points, as previously expected.

Experts warn the market, believing that the slowdown in inflation is likely to be temporary. The positive dynamics was mainly due to lower fuel costs, while prices for other categories of goods, such as food or housing, continue to increase, and the overall increase in indicators is close to forty-year highs. Thus, the risks of recession in the national economy remain.

The strengthening of the European currency as a whole is associated with hopes for a less sharp tightening of monetary policy in the United States, and not with the state of the European economy, which is still experiencing serious difficulties. Published the day before, July inflation data in Germany recorded a decline from 7.6% to 7.5% year on year. As in the US, this was achieved by lowering fuel prices, but overall inflation remains high. In addition, the problems with the shortage of gas supplies to the EU countries have not yet been solved even with the help of savings. Moreover, the German government has received a large number of applications from enterprises for exemption from the need to save "blue fuel".

The current strengthening of the euro is seen as temporary and is unlikely to lead to a break in the long-term downtrend.

The price consolidated above 1.0253 (Murray [4/8]) and may continue rising to 1.0500 (Murray [6/8]), 1.0620 (Murray [7/8]). The probability of continued growth is confirmed by the indicators: Bollinger Bands and Stochastic are reversing upwards, and MACD is preparing to move into the positive zone. The key for the "bears" is the level of 1.0131 (Murray [3/8]), and its breakdown will give the prospect of further decline to the levels of 1.0000 (Murray [2/8]), 0.9887 (Murray [1/8]).

Resistance levels: 1.0500, 1.0620. | Support levels: 1.0131, 1.0000, 0.9887.

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