The US Dollar and EUR/USD both traded sideways on Monday, with both currency pairs moving down from their highs. The US Dollar was also affected by weaker economic data. On Friday, the US Producer Price Index came in at a slower rate than expected. This could put the Federal Reserve’s upcoming hike in doubt.
However, the US Consumer Price Index showed a light increase in inflation. It is still well above the Fed’s target. This could create some volatility in the markets.
Today’s data is important because it will affect the US stock market and the price of the dollar. If the PPI rises, then the US dollar may fall. Conversely, if the PPI falls, then the Fed might raise the rate sooner.
Meanwhile, European equities have been driven by optimism. A better-than-expected Consumer Price Index, coupled with falling inflation expectations, has sparked consumer sentiment. As a result, the Euro has rallied to its highest level in three months.
Economists are less pessimistic about the eurozone economy than they were a month ago. Although the eurozone economy hasn’t hit bottom, there’s room for further improvement. In fact, the ECB is considering slowing the pace of rate hikes.
Traders should keep in mind that the current level of inflation expectations is still quite low. That is, at least in the near term. And despite the strong labor market, the rate of wage growth has been weak.
While it is true that the rate of credit growth has been at extremely high levels, the debt service ratio has been subdued. In other words, if the Fed is to continue raising rates, the spending side of the equation must remain solid.
On the economic front, retail sales dropped in November, mainly due to a decline in the automobile sector. Additionally, services activity in the country shrank. Another sign of weakness is the drop in housing-related categories. Nonetheless, overall, the global economy remains in the doldrums.
Overall, the USD continues to trade below its 50-day average and will face some short-term downside. However, the long-term trend is still bullish. Traders should keep an eye on the PPI, which is a key driver of inflation.
Interestingly, the PPI is not the most important data release on today’s calendar. The real story is the Consumer Price Index. These numbers are more important and will have a stronger impact on the US economy than the PPI. Also, it is important to note that the Consumer Sentiment report for the US will be released today.
Ultimately, the market is likely to move higher based on the better-than-expected inflation data. It will then be interesting to see how the PPI and consumer sentiment data play out in the future.
In addition, the dolar index is in a suave trend for diciembre. Analyst Michael Cyprys has a “overweight” rating and said that the current entry point is “attractive”. He also said that the recent drop in the value of the dollar makes it more attractive now than it has been in recent months.