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EURUSD Rate Vulnerable to Strong U.S. Consumer Price Index (CPI)

EURUSD Rate Vulnerable to Strong U.S. Consumer Price Index (CPI)

David Song, Strategist

EUR/USD holds a narrow range despite an unexpected uptick in German Industrial Production, but the rebound following the Federal Reserve meeting may start to unravel should fresh data prints coming out of the U.S. economy highlight a diminish threat for below-target inflation

Image of DailyFX economic calendar

Updates to the U.S. Consumer Price Index (CPI) may shake up the near-term outlook for dollar as the headline and core reading are expected to pick up in April.

Signs of sticky price growth may force the Federal Open Market Committee (FOMC) to implement a rate-hike in 2019 as ‘incoming data since our last meeting in March have been broadly in line with our expectations,’ and it remains to be seen if Chairman Jerome Powell & Co. will continue to project a longer-run interest rate of 2.50% to 2.75% as Fed officials are slated to update the Summary of Economic Projections (SEP) in June.

Image of fed fund futures

Keep in mind, Fed Fund Futures still show a greater than 50% probability for a December rate-cut as the FOMC plans to taper the $50B/month in quantitative tightening (QT), but little to no indications for a change in regime may boost the appeal of the U.S. dollar as the ‘baseline view remains that, with a strong job market and continued growth, inflation will return to 2 percent over time.’

In turn, a material uptick in the headline and core CPI may generate a bullish reaction in the greenback, with the monthly opening range in focus for EUR/USD as the exchange rate appears to be stuck in a narrow range.

EUR/USD Rate Daily Chart

Image of eurusd daily chart

The broader outlook for EUR/USD remains tilted to the downside as both price and the Relative Strength Index (RSI) continue to track the bearish formations from earlier this year, with the near-term outlook mired by the failed attempt to push back above the Fibonacci overlap around 1.1270 (50% expansion) to 1.1290 (61.8% expansion).

In turn, will keep a close eye on the monthly opening range, with lack of momentum to hold above the 1.1190 (38.2% retracement) to 1.1220 (78.6% retracement) region raising the risk for a move towards 1.1140 (78.6% expansion). Next downside region of interest comes in around the 1.1100 (78.6% expansion) handle followed by the 1.1040 (61.8% expansion) area.

For more in-depth analysis, check out the 2Q 2019 Forecast for the Euro

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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