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EURUSD Retains Bull Trend as Dollar Risks More Losses on Slowing CPI

EURUSD Retains Bull Trend as Dollar Risks More Losses on Slowing CPI

David Song, Gregory Marks,

- U.S. Consumer Price Index to Slow for First Time in Four-Months

- Core Inflation to Hold Steady at Annualized 1.6%

Trading the News: U.S. Consumer Price Index

A slowdown in the headline reading for U.S. inflation may prompt further declines in the dollar as it dampens the interest rate outlook for the world’s largest economy..

Forex-EURUSD-Retains-Bull-Trend-as-Dollar-Risks-More-Losses-on-Slowing-CPI_body_ScreenShot223.png, EURUSD Retains Bull Trend as Dollar Risks More Losses on Slowing CPI

Why Is This Event Important:

Even though the Federal Open Market Committee (FOMC) is widely expected to discuss another $10B taper in March, the central bank remains poised to introduce a ‘qualitative approach’ for monetary policy, and a dovish twist to the forward-guidance may heighten the bearish sentiment surrounding the reserve currency as Fed Chair Janet Yellen remains reluctant to halt the zero-interest rate policy (ZIRP).

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Producer Price Index (YoY) (FEB)

1.2%

0.9%

Consumer Credit (JAN)

$14.000B

$13.698B

Consumer Confidence (FEB)

80.0

78.1

Slowing input costs paired with the downturn in consumer confidence may prompt businesses to engage in discounting, and a dismal CPI print may trigger a bearish reaction in the USD as it raises the threat for disinflation.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Advance Retail Sales (MoM) (FEB)

0.2%

0.3%

Average Hourly Earnings (YoY) (FEB)

2.0%

2.2%

Personal Income (JAN)

0.2%

0.3%

However, U.S. firms may raise consumer prices amid the pickup in wage growth along with the resilience in private sector spending, and a stronger-than-expected inflation print may generate a near-term bounce in the greenback as it puts increased pressure on the Fed to normalize monetary policy sooner rather than later.

How To Trade This Event Risk(Video)

Join DailyFX on Demand for LIVE EURUSD SSI Readings During the Event

Bearish USD Trade: Consumer Prices Slow to 1.2% or Lower

  • Need to see green, five-minute candle following the release to consider a short dollar trade
  • If market reaction favors a long EURUSD position, sell pair with two separate position
  • Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is hit; set reasonable objective

Bullish USD Trade: Inflation Beats Market Forecast

  • Need red, five-minute candle to favor a long dollar trade
  • Implement same setup as the bearish USD trade, just in reverse

Potential Price Targets For The Release

EURUSD Daily

Forex-EURUSD-Retains-Bull-Trend-as-Dollar-Risks-More-Losses-on-Slowing-CPI_body_Picture_2.png, EURUSD Retains Bull Trend as Dollar Risks More Losses on Slowing CPI

Chart - Created Using FXCM Marketscope 2.0

  • Failure to Close Above 1.3960-70 to Confirm Higher High is in Place
  • Break of Bullish RSI Momentum to Highlight Near-Term Correction
  • Interim Resistance: 1.3960-70 (61.8% expansion)
  • Interim Support: 1.3600 Pivot to 1.3620 (23.6 retracement)

Impact that the U.S. Consumer Price Index has had on EUR/USD during the last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JAN 2014

02/20/2013 13:30 GMT

1.6%

1.6%

+16

+15

January 2014 U.S. Consumer Price Index

Forex-EURUSD-Retains-Bull-Trend-as-Dollar-Risks-More-Losses-on-Slowing-CPI_body_Picture_1.png, EURUSD Retains Bull Trend as Dollar Risks More Losses on Slowing CPI

Price action was limited at the release of US CPI figures for January, but the 16 pip gain at the release held into the daily close. We saw the Euro fall off sharply earlier in the European session as PMI numbers came in generally weaker across the board. It may be the case that we see a generally slow session as market participants await Wednesday’s FOMC event risk. As for insight into this print, it is notable that fuel costs were above average for the month of February as WTI Crude topped $105 a barrel.

--- Written by David Song, Currency Analyst and Gregory Marks

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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