July 15, 2022 04:22 AM ET
The EUR/USD exchange rate is very choppy in Asian trading. The pair traded in a narrow range of 1.0011-1.0041 as investors awaited the release of the US Retail Sales and Michigan Consumer Sentiment Index (CSI). It rallied strongly on Thursday after giving up the magic number of 1.0000. The parity between the common currency and the dollar is expected to keep the bears active.
The US dollar index (DXY) is trying to recover after a sharp decline on Thursday. The DXY fell after reaching a new 19-year high of 109.26 as profit-taking set in. It is worth noting that the asset is continuously refreshing its highs, which shows the strength of the DXY bulls on a broader basis. The DXY is expected to turn its corrective phase into a bullish impulse wave after breaking the round resistance at 109.00.
The release of the improved Consumer Price Index (CPI) and Producer Price Index (PPI) this week has increased the chances of a 1% rate hike by the Federal Reserve (Fed) at its upcoming monetary policy meeting later this month. The simple CPI came in at 9.1%, well above estimates of 8.8% and the previous release of 8.6%. The PPI data (excluding oil and food prices) also came in at 8.2%, slightly above estimates of 8.1% but still below the previously released 8.5%. This will put further pressure on the bulls of the single currency.
There is no denying that continued price pressures and rising interest rates have already increased the likelihood of a recession. The latest inflation figures have risen even further, as a Fed rate hike of a full percentage point will significantly reduce liquidity in the economy.