U.S. Dollar Rallies As Inflation Rate Jumps To 3.8%: Analysis For EUR/USD, GBP/USD, USD/CAD, USD/JPY

U.S. Dollar Tests New Highs As Inflation Rate Exceeds Estimates

U.S. Dollar Index gained strong upside momentum as traders reacted to CPI data. Inflation Rate increased from 3.3% in March to 3.8% in April, compared to analyst forecast of +3.7%. Core Inflation Rate grew from 2.6% to 2.8%, while analysts expected that it would increase to 2.7%.

Rising gasoline and grocery prices pushed Inflation Rate to levels that were last seen back in May 2023, when the economy was recovering from the coronavirus crisis.

Currently, U.S. Dollar Index is trying to settle above the 98.40 level. In case this attempt is successful, U.S. Dollar Index will head towards the nearest resistance level, which is located in the 98.85 – 99.00 range.

EUR/USD Retreats As Traders Focus On U.S. Inflation Report

EUR/USD is losing ground as traders react to the Euro Area ZEW Economic Sentiment Index report. The report showed that Economic Sentiment improved from -20.4 in April to -9.1 in May, compared to analyst forecast of -20.

The surprising improvement of the Economic Sentiment Index did not provide support to the European currency as traders focused on U.S. inflation data and rising oil prices.

In case EUR/USD manages to settle below the 50 MA at 1.1737, it will head towards the support level at 1.1665 – 1.1680. RSI is in the moderate territory, so there is plenty of room to gain momentum in the near term.

GBP/USD Pulls Back As UK Retail Sales Miss Expectations

GBP/USD pulled back as traders focused on the disappointing BRC Retail Sales Monitor report for April. The report indicated that Retail Sales declined by -3.4% year-over-year, compared to analyst consensus of +0.8%.

GBP/USD settled below the previous support at 1.3570 – 1.3585 and is trying to settle below the 1.3500 level. If GBP/USD pulls back below the 1.3500 level, it will head towards the support level at 1.3450 – 1.3465.

USD/CAD Gains Ground As Precious Metals Markets Pull Back

USD/CAD tests new highs as traders focus on the pullback in precious metals markets. From a big picture point of view, traders are worried that high oil prices will destroy demand for commodities. Other commodity-related currencies are also losing ground in today’s trading session.

Currently, USD/CAD is trying to settle above the resistance level at 1.3700 – 1.3715. In case this attempt is successful, USD/CAD will move towards the next resistance level, which is located in the 1.3775 – 1.3790 range.

USD/JPY Moves Higher Amid Rising Treasury Yields

USD/JPY continues to move higher as traders shrug off intervention risks and focus on rising Treasury yields. The yield of 2-year Treasuries climbed towards the 4.00% level, while the yield of 10-year Treasuries moved above 4.45%.

Importantly, the yield of 30-year Treasuries has moved back above the psychologically important 5.00% level. In case the yield of 30-year Treasuries manages to settle above 5.00%, it may gain material upside momentum and move towards 5.50%, which could have a significant impact on forex markets.

The nearest resistance level for USD/JPY is located in the 158.00 – 158.50 range. A successful test of this level will open the way to the test of the 160.00 level. It remains to be seen whether BoJ tries to intervene again amid rising Treasury yields.

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