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Despite the fact that absolutely all macroeconomic statistics in the United States turned out to be worse than forecasts, the dollar was able to significantly strengthen its position. The answer to such a strange behavior of the dollar is very simple - inflation. More precisely, the rapid growth of inflation from 5.4% to 6.2%. The last time inflation was higher was only in November 1990. And in theory, given the growing concerns about global inflation, as well as the risks to economic growth that it carries, all this should have led to a significant weakening of the dollar. Unless you take into account the fact that last week the Federal Reserve announced a revision of plans to raise the refinancing rate. Previously, everyone was sure that the central bank would raise interest rates at least once next year. But for some unknown reason, the Fed announced that rates would be raised only in an emergency. So, the increase in inflation to the highest level in 31 years is thus force majeure. Now it cannot be ruled out that the refinancing rate will be increased this year. At least, following the results of the next meeting of the Fed, an increase in interest rates will be announced just for next year. It was this change in conditions, or rather expectations, that caused the impressive growth of the dollar.
Inflation (United States):
But after all, in addition to inflation data, data on the labor market were also published yesterday, which, as already noted, also turned out to be noticeably worse than forecasts. In particular, the number of initial applications for unemployment benefits decreased by 4,000. This, of course, is not much different from the forecast of 5,000. Unlike repeated requests, the number of which should have decreased by 50,000. It has increased by 59,000. However, against the background of inflation data, it no longer mattered.
Number of repeated applications for unemployment benefits (United States):
Today is a day off in the United States, and no macroeconomic data is published in the euro area. But this does not mean that the market will stand still. Quite interesting data is published in the UK. In particular, the preliminary estimate of GDP for the third quarter, which should show a slowdown in economic growth from 23.6% to 6.5%. In principle, a sharp slowdown in GDP growth in the third quarter is not something strange, since it's all about the effect of the low base of last year. However, neither in the United States nor in the euro area is there such a large-scale slowdown in economic growth as in the United Kingdom. It is quite obvious that this is an exceptionally negative factor for the pound. In addition, the growth rate of industrial production may slow down from 3.7% to 3.4%. So the market is clearly not going to stand still. At least the pound will definitely show some activity. However, its result will be a weakening of the British currency.
Change in GDP (UK):
The British currency lost more than 150 points in value during the past day, which caused an inertia in the market. The support level of 1.3400 serves as a fulcrum on the bears' path, which has already exerted pressure on short positions in history.
The RSI technical instrument crossed the 30 line from top to bottom in the four-hour period, this signals that the pound is oversold.
On the chart of the daily period, there is an attempt to prolong the downward cycle from the beginning of June.
Expectations and prospects:
In this situation, we have a number of technical factors that put pressure on the bears. This is a high oversold level, a local low in the face of 2021, as well as a non-working day in the United States. Thus, if the speculative background fades into the background, and the quote will not be able to stay below the support level of 1.3400, then there may well be stagnation or a technical pullback in the market.
A comprehensive indicator analysis gives a buy signal based on short-term periods in view of signs of a pullback from the 1.3400 level. Indicators of technical instruments in the four-hour and daily periods signal a sale.
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