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Top 5 Events: April US Inflation Report & EURUSD Price Forecast

Top 5 Events: April US Inflation Report & EURUSD Price Forecast

2019-05-06 19:15:00
Christopher Vecchio, CFA, Senior Strategist
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Talking Points:

- The April US Consumer Price Index is due on Friday, May 10 at 12:30 GMT.

- The inflation report on Wednesday will only underscore the belief that the Fed is due to keep policy on hold for the foreseeable future.

- Retail traders are now buying the US Dollar despite its failed breakout attempt via the DXY Index.

Join me on Mondays at 7:30 EDT/11:30 GMT for the FX Week Ahead webinar, where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.

05/10 FRIDAY | 12:30 GMT | USD Consumer Price Index (APR)

The April US Consumer Price Index on Friday is due to show another small rebound in price pressures, not much of a surprise given the rise in oil prices since the start of 2019. But with the oil price rebound moderating over the past few weeks, inflationary gains are due to be limited.

Crude oil prices fell by -1.8% between April 5 and May 3, down from 63.08 to 61.94. In turn, medium-term US inflation expectations, as measured by the 5y5y inflation swap forwards, are off by -0.3-bps from 2.260% to 2.257% over the past month.

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Overall, the readings are due right at the Federal Reserve’s medium-term target of +2% - supporting Fed Chair Powell’s assessment at the May Fed meeting that low inflation seen earlier this year was “transitory.”According to Bloomberg News, headline CPI is expected in at 2.1% from 1.9%, and core CPI is due in at 2.1% from 2% (y/y).

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The inflation report on Fridayshould reaffirm the idea that the Fed is due to keep policy on hold for the foreseeable future; Fed funds futures are pricing in a 6% chance of a 25-bps rate cut in June and a 32% chance of a 25-bps rate cut by September; odds for a 2019 cut are basically a coin-flip now.

Pairs to Watch: DXY Index, EURUSD, USDJPY, Gold

EURUSD Technical Analysis: Daily Price Chart (August 2018 to May 2019) (Chart 1)

Top 5 Events: April US Inflation Report & EURUSD Price Forecast

Much like the broader DXY Index of which the Euro compromises 57.6%, EURUSD prices have been starting to carve out a sideways range around the levels established in the last week of April and around the May Fed meeting. Since bottoming out on April 26, EURUSD prices have been trading sideways between 1.1110 and 1.1265, with the May 1 high established after Fed Chair Powell spoke at the May Fed meeting press conference.

Accordingly, until one of these levels breaks, the EURUSD outlook is neutral. Put into context of the potential bullish falling wedge that has seemingly been forming since December 2018, and it’s very possible that a topside break of 1.1265 would constitute the start of a bullish falling wedge reversal move for EURUSD prices.

IG Client Sentiment Index: EURUSD (May 6, 2019) (Chart 2)

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EURUSD: Retail trader data shows 57.8% of traders are net-long with the ratio of traders long to short at 1.37 to 1. In fact, traders have remained net-long since Apr 12 when EURUSD traded near 1.12658; price has moved 0.5% lower since then. The number of traders net-long is unchanged than yesterday and 21.9% lower from last week, while the number of traders net-short is 8.8% higher than yesterday and 33.0% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EURUSD prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current EURUSD price trend may soon reverse higher despite the fact traders remain net-long.

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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher, email him at cvecchio@dailyfx.com

Follow him in the DailyFX Real Time News feed and Twitter at @CVecchioFX

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

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