US yearly inflation fell to 3% yesterday, with core inflation falling to 4.8%, which was a bigger than expected drop. However, with this data, the downward base effect will be over, and the focus will once again shift to monthly inflation. If the monthly data remains at 0.3% or higher, it indicates that inflation will not reach the Federal Reserve’s target of 2%, and restrictive policies will continue.
There are already some small signs that we may see in next month’s PPI (Producer Price Index). The Bloomberg Commodity Index is aggressively testing its downtrend, and Brent oil has once again exceeded $80. There is an expectation that the manufacturing sector might start to recover after months of stagnation. The upcoming CPI (Consumer Price Index), PPI and ISM data in the coming months will likely provide further insights into the situation.
EURUSD is surging following yesterday’s data and has surpassed the 1.11 resistance level. However, there is a possibility that the upward wedge formation could slow down or potentially halt the upward movement. The zone between 1.1150 and 1.12 could be an important resistance area following the surge. If momentum weakens in that zone, the short-term trend direction may switch to the downside for a downward swing.
Alternatively, if EURUSD rapidly breaks out above the upper line of the wedge, there is further potential for upside movement based on the momentum that came from the Consumer Price Index (CPI).
A key indicator to consider for assessing the medium to long-term movement of EURUSD is the Euro position from COT reports. When looking at the long-term trend, EURUSD has been in a downtrend since 2008. Typically, as the price approaches the trend line, Euro positions tend to become overcrowded. During these instances, EURUSD has entered a short to medium-term downtrend and experienced significant declines.
Currently, the price is gradually nearing the trend line, which is currently around 1.1550, while Euro positions are once again at high levels. If there is a breakout of the wedge formation, EURUSD may aim to test the long-term trendline once more and determine its next move. However, it is worth noting that the trend line is not always tested so closely, which means there is a reasonable chance that the reversal could start from the wedge formation.
