11.05.202113:13 Forex Analysis & Reviews: Inflation rate may change speculators' sentiment in favor of the dollar. Euro and Pound bears may still return

The dollar remains under pressure, while simultaneously it is trying to regain some of the lost positions. Payrolls have been won back and traders are focusing on tomorrow's inflation rate, which could change speculators' sentiment in favor of the dollar. The head of the US Central Bank, Jerome Powell, has steadfastly demonstrated his adherence to a soft position. However, the high value of the consumer price index is likely to force the Fed members to think about phasing out support for monetary policy sooner than expected.

Last month, Dallas Fed President Robert Kaplan caused a stir with his statements. In his opinion, there are growing signs that prices may continue to rise at a rapid pace if left unchecked.

It seems that traders and investors are increasingly at odds with policymakers about price increases. On Monday, they raised inflation expectations to a 10-year high of 2.717%.

Market players are now actively chasing thoughts about how comfortable the Fed will be to remain in the "dovish" position and what it will do if the inflation rate really accelerates more than it should be.

Inflation in the US in annual terms, according to expectations, reached 3.6% in April, which is facilitated by the basic effect of contraction last year.

Significance to the markets on Tuesday ahead of the consumer prices release will be the speeches of Federal Reserve members John Williams and Lael Brainard. Their words will be analyzed for clues regarding the general thinking of the Central Bank on inflation.

There is still a risk for the dollar index to break down the important psychological level of 90.00 in the short term. Below is the February low at 89.60 and the early January low at 89.20.

Reducing the risks of another Scottish independence referendum contributed to the pound's rally. For most of Monday's session, GBP/USD was dominated by bullish sentiment. The growth targets at 1.4110 and 1.4130 were worked out, then the upward trend slowed down.

Today, in the field of view of the pound traders will be the speech of the head of the Bank of England. Unexpected comments can make their own adjustments to the course of trading in the British currency.

To confirm the strengthening of buying sentiment, it is necessary to wait for the breakdown of the resistance level of 1.4146, which can open the way to the values of 1.4180 and above 1.4200. If this does not happen, the GBP/USD rate will move within the range of 1.4115–1.4145.

The bearish scenario will be activated when the support level of 1.4116 is broken. Furthermore, the quote risks sinking to the levels of 1.4080 and 1.4000.

The EUR/USD pair looks stable above 1.2140, with bullish sentiment dominating Tuesday morning. The upward movement when approaching the mirror level of 1.2150 slowed down, however, buyers managed to break through it. This means that the quote can go to the levels of 1.2170, 1.2200, and 1.2240. The growth of the euro today was accelerated by statistics from Germany. The index of investor confidence in the country's economy in May rose to 84.4 points from April's 70.7 points, which is higher than the forecast. Analysts had expected it at 72 points.

However, in this currency pair, both the interest of bulls and bears can be traced. There are two clear signals regarding the possible strengthening of bearish sentiment. This scenario will be implemented when the support level of 1.2127 is broken. Next, we can see the euro below 1.2100 in the area of 1.2063 and 1.2025.

Currency strategists of the UOB Group consider the most likely scenario to be the pair's growth above 1.2200 in the near future.

According to the strategists, after a strong jump in the euro on Friday, its further strengthening is being considered. However, short-term overbought conditions may slow the pace of growth, and while the euro may rise above 1.2200, the prospect of a rise to 1.2240 is not so high yet. In the short term, 1.2110 is already a fairly reliable support.