US Consumer Price Slide
According to the US Labor Department, consumer prices in the world’s largest economy decreased for the first time in five months. For November, inflationary pressures abated to the tune of -0.3% on a month over month basis. Subsequently, the annualized figure declined, gaining by only 1.8% on the year.
Making the headline figure even more pessimistic is the fact that core prices gained by a paltry 0.1%, lower than the 0.2% rise expected by market forecasts. Core prices exclude more volatile food and energy prices, providing a more stable reading.
Helping to keep prices in check were major drop-offs in both energy and drug costs. Medical care in the US witnessed a 0.1% increase, while energy prices remained subdued – plunging by 4.1% in the month.
US Dollar Bearish
The slower pace of consumer prices reinforce the likelihood that monetary easing in the US will continue in the long term – as unemployment and economic output remain subpar. The sentiment is in line with Federal Reserve notions made in Wednesday’s interest rates decision.
In a post decision press conference, Federal Reserve Chairman Ben Bernanke announced the implementation of both inflation and employment benchmarks that will be applied as references in future rate decisions. Unemployment above 6.5% and inflationary pressures below 2.5% will continue to warrant Fed monetary easing.
Ultimately, the commitment is likely to keep US dollar gains at bay in the medium term as inflationary pressures are likely to remain below the central bank’s initial inflation target at 2% for at least the next two quarters.
With the EURUSD approaching major resistance via the 1.3125 barrier, current momentum may be questionable ahead of the weekend. Failure to break above the technical roadblock next week will likely force a drop to initial support at the 1.3000 psychological round figure. Conversely, should bulls gain enough fortitude to break higher, it would open scope for an immediate 1.3250 test.
Source: FXTrek Intellicharts