Breakdown of the latest developments on the global exchanges
Jan 13, 2021, 2:54 PM GMT

FED's Inflationary Goals Are Starting to be Realised, Slowly

Couple Sitting in Front of the Federal Building in Wall Street

The annualised inflation rate in the U.S. reached 1.4 per cent in December, say the Bureau of Labour Statistics (BLS). According to the Bureau's monthly economic review that was just released, this marks a marginal increase of 0.2 per cent from over a month prior.

Moreover, the reported performance exceeded the preliminary market forecasts, anticipating an increase to 1.3 per cent. Thus, the overall price stability is recovering, albeit still being a far way off from the desired level.

U.S. Inflation Rate

The observed rise in inflationary pressures in December is juxtaposed against the labour market's sizable contraction over the same period. Nevertheless, rising prices can be attributed to the parallel stabilisation in the manufacturing sector.

Prices still remain relatively subdued in relation to FED's goals of inflation past the symmetric 2.0 per cent target; however, the bigger-than-expected surge in December means that the efforts of Jerome Powell and his colleagues are starting to pay off.

Namely, the massively accommodative monetary policy stance of the Federal Reserve is shown to be fulfilling its primary function of boosting demand, gradually. While it is too early to assert any hawkish interventions by the FED in the foreseeable future, traders can relax because the likelihood of any rate cuts now seems minuscule.

Even though the low yields in the U.S. remain a primary impediment to the recuperation of the dollar, the upcoming earnings season could stimulate global demand for the greenback.

As can be seen on the hourly chart below, the EURUSD continues to be developing its trend reversal, as expected. Not even the latest tribulations in Washington affected the rebound.

The price action has recently concluded establishing a Dead Cat Bounce, representing a classic pattern indicating the likely continuation of the dropdown.

Moreover, the Ichimoku Cloud indicator underpins the solid bearish bias in the market, seeing as how the Dead Cat Bounce peaked at the cloud. All of this behaviour of the price action in relation to the Ichimoku Clouds seems to suggest that the EURUSD is likely to continue diving in the near future.

Finally, the MACD indicator is also underpinning the resurgence of bearish momentum after completing the Dead Cat Bounce.

EURUSD 1H Price Chart