Breakdown of the latest developments on the global exchanges
Jun 22, 2021, 8:54 AM GMT

Inflation Growth Not Yet a Concern, Powell Assures. The EURUSD Consolidates

FED Chair Jerome Powell spoke before the House of Representatives today, talking about the effect of FED's coronavirus relief aid, inflation growth

FED Chair Jerome Powell delivered his speech before the House of Representatives at Washington on the effectiveness of FED's coronavirus relief aid. Expectedly, Powell assured that the pace of inflation growth is not a major threat to recovery.

Meanwhile, the price of the EURUSD consolidates on Powell's remarks concerning the strength of the ongoing recovery. The pair dropped significantly last week following the June meeting of the Federal Reserve. Presently, the price action is levelling as the market prices in FOMC's newly adopted hawkishness.

the EURUSD consolidates in a tight range following Jerome Powell's comments earlier today before the US House of Representatives

As shown, the price action is behaving as per the expectations of the Wyckoff Cycle method in the short term. The EURUSD consolidates in an Accumulation range, following the completion of the preceding Markdown.

The consolidation range spans between the major support at 1.18550 and the 23.6 per cent Fibonacci retracement level at 1.19181. If the price manages to break out above the latter decisively, it could then head towards the next psychological target. This is the 38.2 per cent Fibonacci at 1.19621.

Two crucial factors underscore this possibility. The price action is currently concentrated above the range's mid-point at 1.18900 and above the three key moving averages. Those include the 100-day MA (in blue), the 50-day MA (in green), and the 20-day MA (in red).

This behaviour is demonstrative of increasing bullish commitment. However, the 200-day MA (in orange) serves the role of a floating resistance. This makes it a likely turning point for any potential breakout.

On the other hand, a dropdown towards the lower part of the range would mean that the broader bearish sentiment is still active. The previous Markdown will be resumed if the price breaks down below 1.18550. This is also quite probable, given the strengthening dollar.

Inflation growth is subject to 'transitionary supply effects'

In his statement, Powell maintained that inflation growth is owing mostly to momentary trends whose overall impact will gradually subside. Consequently, prices would fall back within FED's longer-term projections.

" Inflation has increased notably in recent months. This reflects, in part, the very low readings from early in the pandemic falling out of the calculation; the pass-through of past increases in oil prices to consumer energy prices; the rebound in spending as the economy continues to reopen; and the exacerbating factor of supply bottlenecks, which have limited how quickly production in some sectors can respond in the near term. As these transitory supply effects abate, inflation is expected to drop back toward our longer-run goal."

As pandemic restrictions are lifted, and activity picks up, supply and demand equilibriums in the economy are expected to become more stable. Supply bottlenecks would be terminated, and consequently, demand would wane.