10.06.202113:00 Forex Analysis & Reviews: Only strong values from the US consumer inflation will cause noticeable market movements

Investors are waiting patiently for the publication of the US inflation data for May, which will have a noticeable impact on their mood.

According to the forecast, the general consumer inflation is expected to rise to 4.7% against 4.2% in annual terms, and on the contrary, it will slow down to 0.4% from 0.8% in April in monthly terms. In addition, the core consumer price index should rise by 0.4% in May against 0.9% in April. The annual value of the indicator is also forecasted to do so by 3.4% against 3.0% in the previous period under review.

Why are investors waiting so anxiously for this data and how can it affect the balance of power in the financial markets?

The importance of the inflation data, especially the values of its consumer part, is currently a vital element in understanding what to expect from the Fed this year in terms of the likelihood of a change in the course of monetary policy.

Earlier, the markets were shocked by the statement of Treasury Secretary J. Yellen, who said that it would be nice to see slightly higher interest rates by the end of this year. The effect of these wishes can only increase if the figures on consumer inflation presented today, and especially its base values, show noticeably higher values.

The continued rise in inflation is bound to force the Fed to act at an earlier stage than previously stated. If earlier, some members of the Central Bank said that monetary policy will remain unchanged until the end of this year, the continuation of the growth of inflationary pressure will lead to the fact that the regulator will have no choice but to start reducing the volume of government bond purchases from September this year, and the first-rate increase may be carried out by the end of the year. The Fed, with all its desire, will not be able to keep monetary policy stimulating for as long as possible to support the growth of the national economy. According to its mandate, it will not calmly look at the unwinding of inflation to unacceptable values.

But if the inflation figures are lower than expected, this will slightly calm the markets and return to, the demand for risky assets albeit not for a long period of time. Anyhow, it will only be a local surge of optimism and nothing more. In fact, the US stock market faces the risk of a deep correction with a high probability of its transition to a downward trend. In view of this, the dollar rate will receive support.

However, it is worth noting that such a scenario will only take place in case of strong inflation values.

Forecast of the day:

The EUR/USD pair is trading with slight changes in anticipation of the final decision of the ECB on monetary policy, which is unlikely to significantly affect the pair due to the US inflation data release. If the values are significantly higher than the forecast, the pair will decline to 1.2090; but if they turn out to be lower, it will locally rise first to 1.2260.

The USD/CAD pair is trading in the range of 1.2060-1.2135 in anticipation of the publication of US inflation data. If the values exceed the forecast, the pair will rise above the level of 1.2135, namely to 1.2175. If they turn out to be lower, we should expect a local decline of the pair, first to 1.2060, and then to 1.2025.