Consumer prices in March are expected to have their first annual drop since 1954 as economists are forecasting that they fell to -0.1% from 0.2% the month prior. Following yesterday’s larger than expected 3.5% decline in producer prices we could see a sharper than expected fall in inflation.
Fundamental Outlook
Consumer prices in March are expected to have their first annual drop since 1954 as economists are forecasting that they fell to -0.1% from 0.2% the month prior. Following yesterday’s larger than expected 3.5% decline in producer prices we could see a sharper than expected fall in inflation. This will raise deflation concerns and could reignite depression talk as the downside risk to the economy will increase if the Fed’s printing of money fails to raise prices to a level where they stimulate growth. Therefore, a decline in inflation could spark risk aversion sentiment and lead to dollar support which would support the bullish greenback technical outlook.
Technical Outlook
“The fractal nature of the market has been on full display in the EURUSD since the top last year at 1.60. There are 5 waves down and 3 waves up at 2 degrees of trend. The ‘1-2’ down from 1.4723 is waves 1 and 2 of the next 5 wave decline.” Since 1.3742, the EURUSD has made lower highs and lower (albeit slightly) lows. There is no reason to alter the bearish outlook. It is unclear if yesterday’s high (1.3396) remains intact. A push above there exposes potential trendline resistance just shy of 1.35. The critical level for bears though is 1.3586. Potential short term support today is 1.32 (short term Fibonacci).
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To discuss this report contact John Rivera, Currency Analyst: jrivera@fxcm.com
