EUR/USD to Mount Larger Rebound on Slowing U.S. Core CPI
- U.S. Consumer Price Index (CPI) to Rebound to Annualized 1.1% in April.
- Core Rate of Inflation Expected to Slow for Second-Consecutive Month.
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Trading the News: U.S. Consumer Price Index (CPI)
Despite forecasts for a rebound in the U.S. Consumer Price Index (CPI), another slowdown in the core rate of inflation may dampen the appeal of the greenback and spark a near-term advance in EUR/USD as it drags on interest-rate expectations.
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Why Is This Event Important:
Even though Fed officials see scope for two rate-hikes in 2016, signs of a slower-than-expected recovery may push the Federal Open Market Committee (FOMC) to further delay the normalization cycle amid the external risks surrounding the real economy.
Expectations: Bearish Argument/Scenario
|Non-Farm Payrolls (APR)||200K||160K|
|ADP Employment (APR)||195K||156K|
|Gross Domestic Product (Annualized) (QoQ) (1Q A)||0.7%||0.5%|
Easing job growth accompanied by signs of a slowing recovery may push U.S. firms to offer discounted prices, and a softer-than-expected CPI report may weigh on the greenback as market participants push out bets for the next Fed rate-hike.
Risk: Bullish Argument/Scenario
|Advance Retail Sales (MoM) (ARP)||0.8%||1.3%|
|Personal Income (MAR)||0.3%||0.4%|
|Average Hourly Earnings (YoY) (APR)||2.4%||2.4%|
However, stronger wage growth paired with the rebound in private-sector spending may boost consumer prices, and a pickup in the headline & core rate of inflation may spur a bullish reaction in the U.S. dollar as it puts increased pressure on the Fed to implement higher borrowing-costs.
How To Trade This Event Risk(Video)
Bearish USD Trade: Core Rate of Inflation Narrows to 2.1% or Lower
- Need green, five-minute candle following the print to consider a long position on EUR/USD.
- If market reaction favors a bearish dollar trade, buy EUR/USD 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 limit.
Bullish USD Trade: U.S. CPI Report Exceeds Market Forecast
- Need red, five-minute candle to favor a short EUR/USD trade.
- Implement same setup as the bearish dollar trade, just in reverse.
Potential Price Targets For The Release
Chart - Created Using FXCM Marketscope 2.0
- Following the failed attempt to test the August high (1.1713), EUR/USD may continue to give back the advance from the previous month as it remains stuck in a descending channel formation, with a near-term hurdle coming in around 1.1210 (61.8% retracement) to 1.1230 (38.2% retracement).
- Interim Resistance: 1.1760 (61.8% retracement) to 1.1810 (38.2% retracement)
- Interim Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)
Check out the short-term technical levels that matter for USD/CAD heading into the report!
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Impact that the U.S. Consumer Price report has had on EUR/USD during the previous month
|Period||Data Released||Estimate||Actual||Pips Change||Pips Change|
|MAR 2016||04/14/2015 12:30 GMT||1.0%||0.9%||+22||+13|
March 2016 U.S. Consumer Price Index (CPI)
The U.S. Consumer Price Index (CPI) unexpectedly narrowed in March, with the headline reading slipping to an annualized 0.9% from 1.0% the month prior, with the core rate of inflation following suit as the figure slowed to 2.2% from 2.3% during the same period. A deeper look at the report showed a 1.1% decline in prices for apparel, which was accompanied by a 0.2% drop in prices for food/beverages, while transportation costs increased 0.4% as energy prices climbed 0.9%. The greenback struggled to hold its ground following the weaker-than-expected CPI report, with EUR/USD advancing from the 1.1250 region to end the day at 1.1265.
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--- Written by David Song, Currency Analyst
To contact David, e-mail firstname.lastname@example.org. Follow me on Twitter at @DavidJSong.
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