Market Volatility Expected as Inflation Day Hits Global Markets

Investors expect higher volatility throughout today’s trading session as it's inflation day for both sides of the Atlantic. This is largely relevant for traders speculating on the EUR/USD exchange price and indices in both regions. In addition, China has just released its Purchasing Managers’ Index influencing Asian stocks and oil prices.

EUR/USD

The EUR/USD continued to follow the price action pattern of the previous days, with the exchange rate declining in the Asian sessions and climbing after that. The exchange rate has increased in value for 5 consecutive days and is close to renewing March’s highs. The price this morning has seen another decline in the Asian session again, but traders should be cautious that it does not rebound as it had throughout the week. 

EUR/USD 1-Hour Chart on March 31st 

The price of the Dollar came under immense pressure during yesterday’s session, especially after the Gross Domestic Product was confirmed. The final GDP predictions tend to be accurate as its the final of three figures released. However, the GDP read 2.6%, which is lower than the 2.7% which the market was expecting and the 3.2% from the previous quarter. The economic data confirms the US economy is slowing faster than previously expected. The weekly unemployment claims came in as expected, reading 198,000, similar to the previous week. 

As a result, the US Dollar Index again came under pressure, dropping to a new weekly low of 102.08. The index this morning is experiencing a slight increase climbing by 0.09%. The question traders are now asking is whether lower economic growth will contribute to lower inflation and an unchanging monetary policy. However, economists have advised that the data needs to be more significant to affect employment or interest rates. 

The Federal Reserve advises that another 25 basis points are possible if inflation backs the move. The latest member to give a similar indication is the Boston Federal Reserve President, Susan Collins. Even though the GDP figures point towards lower economic growth, the stock market positively reacted based on a possible weaker monetary policy.

The Euro, on the other hand, is experiencing better price action against the main global currencies. The Euro is increasing against the Swiss Franc and Japanese Yen and seeing mixed price movement against the Pound—the latest economic releases in Europe point towards a hawkish European central bank. Yesterday, Germany released their monthly CPI, which read 0.8%, slightly higher than expected and similar to last month’s inflation figures. On an annual basis, inflation fell from 8.7% to 7.4% instead of 7.3%. The inflation data remains much higher than the central bank’s target. 

Investors throughout the day will be focusing on 2 economic releases, the Core PCE Price Index for the US and the Flash CPI Estimates for Europe. Higher-than-expected inflation figures can support the currency. 

Crude Oil 

The price of crude oil during yesterday’s trading session climbed by 2.07% and experienced a substantial price movement between the European and US sessions. The price has risen over the past week as investors take advantage of the lower price and weaker US Dollar. In addition, investors have feared the supply within the market will decline. 

Russia has advised that the production levels will decline towards the end of Spring. In addition to this, Iraq has confirmed that they will provide 450,000 barrels less due to disagreements with Turkey and Turkish ports. According to the US’s latest report, US commercial oil stocks recently fell by 7.489M barrels instead of increasing as the market expected. Petrol inventories in the US also decreased by 2.904M barrels. 

The latest Chinese data are also influencing the price of Crude Oil made public this morning. China’s Purchasing Managers Index both increased above what the market was expecting. PMI data had risen to the highest level since 2011, indicating that fuel demand may increase.

Crude Oil 1-Hour Chart on March 31st 

Summary:

• The US Gross Domestic Product indicates less economic growth than the market was previously expecting. 
• German monthly inflation remains above satisfactory levels, but German inflation has declined from 8.7% to 7.4%. Inflation levels continue to point towards a hawkish central bank. 
• Investors expected to concentrate their analysis on today’s European and US inflation data. 
• Chinese PMI data has risen to its highest level since 2011.