EUR/USD maintained sideways at 1.0100 – 1.0270 for over three weeks. Trials to overcome its upside or downside boundary met failure. Even massive U.S labor market data in August’s initial week could not assist the dollar. Remember, the United States unemployment rate stayed at 3.6% since this year March, which is a lucrative indicator.
It further lowered to 3.5% in July. And such a crucial indicator as non-farm payrolls (jobs created outside the farming/agricultural sector) outshined its 250K forecast to hit 528K. That’s regardless of its standing at 372K one month earlier.
Sideways action persisted until 10 August when EUR/USD noted a sharp upside to flip 1.0270 to support from resistance. Meanwhile, the case here isn’t the strengthening euro but the weakening dollar. The American currency fell after the United States inflation data.
The forecasted 0.2% CPI (consumer price index) in July came at 0.0% – 1.3% the prior month. It declined to 8.5% from 9.1% yearly. The base CPI surged only 0.3% over the past month, missing the 0.5% expectation.
The Inflation Battle
These numbers show that inflation is easing. Remember, the Federal Reserve has fought inflation due to deteriorated market conditions. Though this doesn’t translate to the final victory, it shows the central bank’s success. Thus, the bank could soften its financial stance, quitting aggressive hikes as it did over the last two months.
Fed Chair Jerome Powell convinced market players that the central bank remained hawkish during the July end Federal Open Market Committee (FOMC) conference. He added that the central bank could continue hiking rates, adopting a more aggressive mood. Nevertheless, investors didn’t trust Powell and responded by venturing into the stock market.
Meanwhile, the inflation data became another squabble favoring the narrative the FOMC might not execute a 75bp and resort to 50bp in September before halting hikes in November and resorting to QE come 2023.
However, this remains a forecast. Precisely, just expectations and not a prediction. However, these expectations continued to propel Dow Jones, Nasdaq, and S&P 500 higher. They also rescued EUR/USD from falling to the 1.0000 parity again.