Fundamental analytics

Inflation data will determine the medium-term dynamics of USD dollar, FX markets consolidate

On Tuesday, European equity markets attempted to recover some ground with technical rebound on  background of oversold indices, but markets failed to return into the green. Gaining European currency prevented European stocks from entering the green zone. American markets continued the restrained growth and displayed minor gains. As a result, the oversold market was eliminated, but there was neither possibility nor willingness to develop further upward movement .

Today, all the attention of traders is focused on inflation data coming out at the beginning of American session. Traditionally, the inflation remains the main indicator for the Fed with regard to monetary policy. US inflation remains below the target level of 2% and the Fed closely follows this important economic indicator. Low inflationary pressures significantly limits the Fed in the matter of further raising interest rates. The next meeting of the FOMC will take place at the end of March and by this time it is important for the financial regulator to see an increase in the inflation rate in the country to make a decision about the first increase in the interest rate this year. It is characteristic that all other conditions for tightening monetary policy are present: the growth of American wages, the strength of the US labor market, and the accelerating cycle of economic expansion. Today’s inflation data will be in focus with all expectations for the nearest rate hike and the fate of the USD dollar.

Therefore, in the medium and short term, the future fate of the dollar depends on the indicators of today's inflation report. There is an opinion that the indicator will outperform the market expectations for two reasons, the first is the increase in US fuel prices , which is a very important factor in the formation of consumer prices, the second is high employment and good growth rates of the average salary in the country. In addition, investors will be paying attention today to data on retail sales, which will become known at the same time as the data on the consumer price index.

In Europe, traders will have something to look at. First, investors' expectations are related to the data on Germany's GDP and the EU as a whole. Germany's GDP has already been published, the indicator for January came at the level of expectations and grew by 0.6% as predicted, but this figure is lower than the previous 0.8% growth. The annual indicator stopped at 2.3%, which was in line with the forecast. The market did not react to these data because of fully met expectations. Nevertheless, they can be assessed positively, as they confirm the confident growth rates of the leading EU economy, therefore, the EU GDP indicator, which will become known a little later, is likely to reach the forecast level of 2.7% annual growth and 0.6 % growth for the fourth quarter.

At Forex market European currency was able to gain a foothold above the level of 1.2350, testing local highs in the zone of 1.2388. The first half of today's trading session is restrained, we expect volatility to increase with the start of the American session.


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