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The single European currency grew quite briskly, fueled by the recent statements of several Federal Reserve representatives. Still, it couldn't go on forever. And the market itself has long been very overheated. So the correction only needed an excuse. And to some extent, that's exactly what happened yesterday. Of course, it is too early to talk about a full-fledged correction. Rather, this is a hint that you should not relax, because the euro can quickly fall at any moment.
The reason for such a sudden and confident weakening of the euro came as a complete surprise. The preliminary data on inflation in the euro area, even put the market in a kind of stupor at first. In the worst case, inflation was expected to slow down from 0.4% to 0.0%. The previous data for a number of the largest economies in the euro area did inspire hope that inflation would slow down to only 0.2%. But apparently there is no inflation in Europe, but deflation instead. Consumer prices are down 0.2%. And this is in annual terms. This is of course only preliminary data, and officially there is no deflation yet. But it doesn't matter to investors. For them, Europe has slipped into deflation. And this means that the European Central Bank can talk as much as it wants about the long-term risks of carrying out an overly soft monetary policy, since in the face of falling consumer prices, there can be no question of any increase in interest rates.
Inflation (Europe):
Since deflation in Europe has become a reality, the most important thing now is a somewhat different question. Is it for a long time, or is it just a temporary nuisance? The answer to this question can be provided by today's data on producer prices. And if the forecast is confirmed, and the rate of decline in producer prices slows down from -3.7% to -3.5%, then there is a high probability that inflation will rise, at least to zero, as early as next month. So, don't panic yet. However, if the results turn out to be worse than expected, then deflation may drag on, and this will become a reason for the euro's fall. So a lot depends on these data.
Producer prices (Europe):
The euro/dollar pair, moving along an upward trajectory, found a point of resistance in the face of the psychological level of 1.2000, where a slowdown appeared on a natural basis and, as a result, a correction in the opposite direction. If we proceed from the price's current location, we can see that the quote has returned to the area where trading forces previously interacted - at 1.1900, which theoretically can play a role of support in the market.
High volatility indicators are once again recorded relative to the dynamics, which is confirmed by speculative interest in the market.
Looking at the trading chart in general terms (the daily period), you can see that the 1.2000 level is on the way of developing an upward movement, which restricts buyers in further actions.
We can assume that if the area where trading forces interact at 1.1900 provides support to buyers, then another upward spiral in the direction of 1.1950-1.2000 is not excluded. Otherwise, we may see a deeper corrective movement of 1.1850-1.1800.
From the point of view of a complex indicator analysis, we see that the indicators of technical instruments on the minute and hourly intervals signal a sale due to a price rebound from the 1.2000 level. Daily periods, as before, signal buy.
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