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EUR/USD Rebound Vulnerable to Sticky U.S CPI- 1.0500 Support on Radar

EUR/USD Rebound Vulnerable to Sticky U.S CPI- 1.0500 Support on Radar

2015-04-17 08:00:00
David Song, Shuyang Ren,
Share:

- U.S. Consumer Price Index (CPI) to Retain Slowest Pace of Growth Since 2009.

- Core Rate of Inflation to Hold at Annualized 1.7% for Second Month.

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Trading the News: U.S. Consumer Price Index (CPI)

The U.S. Consumer Price Index (CPI) may prop up the greenback and spark a near-term decline in EUR/USD should the inflation report highlight sticky price growth in the world’s largest economy.

What’s Expected:

EUR/USD U.S. CPI

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Why Is This Event Important:

Despite signs of a slower recovery, the Federal Open Market Committee (FOMC) may continue to prepare U.S. households and business for higher borrowing-costs as Chair Janet Yellen remains confident in achieving the 2% inflation target over the policy horizon.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Credit (FEB)

$12.500B

$15.516B

Consumer Confidence (MAR)

96.4

101.3

U. of Michigan Confidence (MAR F)

92.0

93.0

The pickup in private-sector credit along with the improvement in household confidence may generate sticky price growth in the world’s largest economy, and the ebbing risk for disinflation may heighten the appeal of the greenback as the Fed remains well on course to normalize monetary policy.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Advance Retail Sales (MoM) (MAR)

1.1%

0.9%

Wholesale Trade Sales (MoM) (FEB)

0.3%

-0.2%

Durable Goods Orders (FEB)

0.2%

-1.4%

Nevertheless, U.S. firms may ramp up on discounting amid the ongoing weakness in private-sector spending, and an unexpected slowdown in the CPI may further delay the Fed’s first rate-hike as the central bank struggles to deliver price stability.

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How To Trade This Event Risk(Video)

Bullish USD Trade: U.S. Headline & Core CPI Highlight Sticky Price Growth

  • Need to see red, five-minute candle following the release to consider a short trade on EUR/USD.
  • If market reaction favors a bullish dollar trade, sell EUR/USD with two separate position.
  • Set stop at the near-by swing high/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 limit.

Bearish USD Trade: Consumer Price Index Falls Short of Market Forecast

  • Need green, five-minute candle to favor a long EUR/USD trade.
  • Implement same setup as the bullish dollar trade, just in reverse.

Potential Price Targets For The Release

EUR/USD Daily Chart

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Long-term outlook for EUR/USD remains bearish, but the failure to push back below the 1.5000 handle may continue to foster range-bound prices over the near-term.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short EUR/USD since March 9, with the ratio holding around -1.70.
  • Interim Resistance: 1.0970 (38.2% expansion) to 1.0990 (50% retracement)
  • Interim Support: 1.0487 (3/13 close) to 1.0515 (50% expansion)

Read More:

USDOLLAR Major Behavior Change Takes Place

AUD/USD Clears Short-Term Range, Eyes March High Ahead of RBA Minutes

Impact that the U.S. CPI report 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)

FEB

2014

03/24/2015

12:30 GMT

-0.1%

0.0%

-52

-60

February 2015 U.S. Consumer Price Index

EUR/USD Chart

The U.S. Consumer Price Index (CPI) held flat in February following an annualized 0.1% contraction the month prior amid stabilizing energy prices. At the same time, the core rate of inflation advanced an annualized 1.7 % after expanding 1.6% the month prior. Despite the better-than-expected prints, the Fed may look to further delay its normalization cycle as the central bank struggles to achieve the 2% target for inflation. The initial whipsaw-like market reaction was short-lived as EUR/USD struggled to hold above the 1.1100 handle, with the pair losing ground throughout the day to close at 1.0932.

--- Written by David Song, Currency Analyst and Shuyang Ren

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

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