Even though the embargo on Russian energy imports is partial and will be introduced gradually in the coming months, it will still lead to energy shortages in Europe. In France, huge queues at gas stations were already observed yesterday. People fear that fuel will be gone soon, so they look to stock up on it.
The last thing Europe needs is rising inflation that is already accelerating at a much faster pace than expected. The preliminary estimates were projected to rise to 7.6% from 7.4%. Yet, the figures revealed that consumer prices jumped to 8.1% in May.
Just a week ago, inflation was forecasted to decline to 7.3%. It is still running at a record-high level and continues to rise. The European economy is not used to such a strong surge in prices. Businesses and consumers are at a loss, further exacerbating the economic situation. So, it is hardly surprising that the euro came under strong pressure.
After the opening of the North American session, the euro managed to recover slightly. However, the rise did not last long, and EUR began to depreciate again. Such a spike was caused by Janet Yellen’s words as she said that she underestimated the negative effect of inflation on the economy.
When she was the chair of the US Federal Reserve, the regulator pursued a different policy that allowed inflation to rise. Even after she left office, the Fed stuck to this strategy. The central bank has attempted to curb inflation only recently as it has gotten out of control. In other words, Jantel Yellen has admitted that her actions were damaging to the US economy.
Yet, Yellen’s comment had a short-lived effect on the market as inflation risks in the US are slightly lower than in the EU. The American economy already shows signs of a slowdown in consumer prices. Meanwhile, in Europe, all macroeconomic indicators are being revised downwards.
Thus, the unemployment rate was expected to decline to 6.7% from 6.8%. Today, however, the indicator is expected to stay unchanged. Therefore, the overall economic situation in Europe will continue to put more pressure on the European currency.
Technical Outlook
EUR/USD slowed down the pace of a correction at the lower boundary of the resistance area of 1.0800/1.0850. As a result, the volume of long positions has decreased, and the price pulled back from this level.
The RSI on H4 has crossed the median level of 50, going downwards. This is the first signal of a possible trend reversal. The RSI on D1 is moving along the line of 50, thus confirming that the correction is slowing down.
The moving averages of the Alligator Indicator on H4 crossed, which is another indication of a slowdown in the upward cycle. On the daily chart, the corrective movement is still developing from the pivot point of 1.0350. It takes place within the overall downtrend.
The US dollar has just started to recover. Traders are cautious as they expect the resumption of a corrective movement in case the price returns to the resistance area. The volume of short positions may increase when the price settles below the level of 1.0680. This move will intensify the signal to sell the euro.
Comprehensive indicator analysis generates a sell signal on the short-term and intraday time frames due to a pullback from the resistance level. In the medium term, indicators signal a buying opportunity. This signal is left from an extended correction.
