US dollar bounces back after strong inflation data

The euro declined slightly as traders reacted to a speech by Christine Lagarde, the European Central Bank (ECB) governor. She said that the previous ECB economic forecast was still achievable despite the resurgence of coronavirus. She credited this to the previous risks that clouded the overall outlook, including the US elections, Brexit, and the start of vaccinations. Still, economists polled by Bloomberg expect the bloc to shrink again in the first quarter and rebound later this year. Meanwhile, data from Europe showed that industrial production rose by 2.5% in November. This was better than the consensus estimates of a 0.2% increase.

The price of crude oil rose after encouraging data by the American Petroleum Institute (API). The numbers showed that the overall oil stocks dropped by more than 5.8 million barrels last week. This was a better figure compared to the overall estimate of a 2.7 million drop. It was also the fourth straight week of declines. Later today, the Energy Information Administration (EIA) will publish its official reading. Just yesterday, the organisation revised its oil outlook higher. It expects Brent to average about $52.75 this year and the WTI to average about $49.75.

The US dollar was little changed today after the latest inflation data from the United States. According to the statistics office, the overall consumer prices rose by 0.4% in December. This led to an annual increase of 1.4%. The core CPI increased by 0.1% leading to a 1.6% annual increase. These numbers are still below the official Fed target of 2.0%. Data released earlier showed that the weekly mortgage applications increased by 16.7% last week while the mortgage market index rose from 827 to 965.

EUR/USD

The EUR/USD pair is trading at 1.2178, which is slightly below the intraday high of 1.2222. On the four-hour chart, the price is trading at the 23.6% Fibonacci retracement level. It is also slightly below the ascending trendline that connects the lowest points from December. Notably, the DeMarker and the Relative Vigour Index (RVI) are pointing upwards. Therefore, the pair will possibly retest today’s high during the American session.

XTI/USD

The XTI/USD pair rallied to the 11-month high of 53.83. On the four-hour chart, the price is above the 15-day and 25-day exponential moving averages. The Average True Range (ATR) has continued to fall, signalling that volatility has eased. Also, the Relative Strength Index (RSI) is in the overbought level. Therefore, while the pair will likely continue rising, there’s a possibility of a pullback.

EUR/AUD

The EUR/AUD pair continued falling after Christine Lagarde’s speech. It fell to a multi-year low of 1.5690. On the four-hour chart, this price is below the 25-day and 15-day moving averages. The Relative Strength Index (RSI) and MACD have also started forming a bullish divergence pattern. Therefore, the pair may bounce back in the near term.