Inflation in the USA

Analyse der Finanz- und Warenmärkte

Market Watch review. 17/05/2021

In today's release, we’ll cover the following topics:

  • US inflation returns above 4%.
  • US Federal Reserve key interest rate.
  • Weakening of commodity currencies.
  • The Canadian dollar has updated its highs since 2015.
  • Oil market prospects.

Since February of this year, we have been hearing from various representatives of the Federal Reserve, including the head of the Federal Reserve, that the rise in inflation is only a temporary phenomenon. Thus, all of them are trying to calm the markets from the development of corrective declines, which may develop into an uncontrolled collapse. To be fair, I will note that until the middle of this week they managed to do this. Even despite the statements of the Minister of Finance about the need to raise rates. What has changed?

On Wednesday, during the US trading session, an inflation report was published. The actual data was significantly higher than the already optimistic forecast, reaching a record high since September 2008. Unexpectedly strong growth in the consumer price index increased the pressure on the main US stock indices, which began to decline from the beginning of the week. After all, a significant increase in the rate of inflation growth is perceived by many as confirmation of the Fed's readiness to raise the rate.

Nevertheless, the probability of a change in the main interest rate at the next meeting of the regulator, which will be held on June 16, is very low. The tool for monitoring the US Federal Reserve rate even takes into account the almost 7% probability of its reduction. Therefore, only the statements of the representatives of the Federal Reserve about their readiness to tighten monetary policy, including raising rates, can have a longer-term effect and, as a result, strengthen the US dollar. At the moment, this scenario looks unlikely.

Shifting to the foreign exchange market, I will pay attention to the significant weakening of commodity currencies in a pair with the US dollar. So the AUD/USD currency pair fell by more than 200 points, while the losses of the NZD/USD currency pair exceeded 160 points. European currencies are no exception, although their losses are much more modest.

Analysts of the largest investment banks note the risk of overheating of the US economy, which in turn increases the likelihood of an increase in interest rates and, as a result, further strengthening of the US currency.

I will also pay attention to the USD/CAD currency pair, where the quotes have fallen to the lowest values since 2015. At the same time, we do not observe a steady increase in oil prices. There are also all the prerequisites for the strengthening of the US dollar in the medium term. As a result, the risk of developing a corrective growth of this currency pair increases. The nearest technical level of resistance and as a result the target for buyers is the mark of 1.2300.

At the end of today's review, we will talk about the future of the oil market. The International Energy Agency has lowered its forecast for changes in oil demand in 2021, thereby reducing the likelihood of further price growth. In addition, OPEC is still considering the possibility of further increasing the volume of black gold production, which is also negative for oil prices. Given all this there is a risk of the formation of another sideways movement in the long term.

Closely monitor the news background and be prepared for all the surprises of the market.


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