US CPI data will be one of the most important data this month. As bond rates and inflation expectations rising rapidly, pressure on FED is rising as well. Powell and almost all of the board members are saying inflation will spike but it will be temporary and FED will support the economy as long as inflation stays over %2 and the economy reached full employment.
Well, FED is already forecasted that inflation will remain steady over the 2 percent starting from this year. The employment market still has 9 million jobs to go relative to the start of the pandemic but with fast vaccinations, reopening, and %6.5 growth, FED’s target most likely will be reached before 2022.
The markets may have already started to price in the next taper. For the last 10 years, whenever Euro positions piled up, a FED’s action popped the Euro favored positioning balloon. First, operation Twist will cause a %17.90 decrease on EURUSD, then Taper Tantrum with %24.57, and finally the rate hikes caused a %14 decrease of EURUSD. Now FED did not make a move yet but Euro position dumping has already started and EURUSD fell %4 to 1.17 before got a correction.
For EURUSD, 1.1910 is a key resistance in the short-term, if the price continues to stay below 1.1910, EURUSD may turn towards 1.17 again. But, with the breaking of 1.1910, the road to 1.20 will open.