New Week, New Moves Inflation Remains Persistent in the USA Impacting EURUSD on What Way?

Let us commence another week in the financial markets following significant movements on Friday. If you have not perused my recent blog post, I would strongly advise doing so. In it, I highlighted the peculiar nature of the market over the past few days and emphasized the anticipation among market participants for directional cues from the data. Last Thursday, at 4 am Sydney time, the FOMC convened, offering deliberations on forward guidance and the committee's perspective on recent data releases. However, rather than dispelling the uncertainty that pervaded investors' minds, these discussions served to further confound the market. Friday's events shed light on the Federal Reserve's decision not to provide hints during the MPC, as they seemingly possessed foreknowledge of impending developments.

EURUSD H1 Chart

While I do not insinuate any market manipulation, it is evident that they were well informed.

To begin with, let us examine the market's reaction on EURUSD immediately following the release of the NFP on Friday night. In the image below from Finlogix Charts, I have presented a visual demonstration for clarity.

It is evident that there was an upward movement of 0.62% (67.5 pips) attributable to the markedly lower NFP figure, which weakened the US dollar and bolstered the euro, thereby instigating a bullish trend on EURUSD. I have reiterated this point on numerous occasions to enhance understanding of how the FX market operates.

Furthermore, it is observable that the chart took a bearish turn approximately one hour later. The reason behind this reversal lies in the ISM Non-Manufacturing figures, which surpassed expectations significantly. This development signals heightened inflationary pressures in the economy, with the manufacturing sector bearing the brunt. However, it is unlikely that they will passively accept this situation. Instead, they are expected to adjust their pricing strategies, thereby transferring the inflationary burden to consumers. Consequently, why did the market react positively to the USD?

Economic Calendar

The answer lies in the realization that persistently elevated inflation levels may necessitate a prolonged intervention by the central bank, namely the Federal Reserve and the FOMC. Hence, brace yourselves for an extended period of a stronger USD and a weaker EUR. From the standpoint of my personal strategy, this pullback presents an opportune moment for short positions.

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