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Sticky Core U.S. CPI to Cap EUR/USD Advance

Sticky Core U.S. CPI to Cap EUR/USD Advance

- U.S. Consumer Price Index (CPI) to Narrow for Fourth Time in 2016.

- Core Rate of Inflation to Hold Steady at Annualized 2.3%- Fastest Pace of Growth Since 2012.

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

Despite forecasts for a downtick in the U.S. Consumer Price Index (CPI), stickiness in the core rate of inflation may boost the appeal of the greenback and spark a near-term pullback in EUR/USD as it puts pressure on the Federal Reserve to raise the benchmark interest rate sooner rather than later.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

The growing risk of overshooting the 2% inflation-target may spur a larger dissent within Federal Open Market Committee (FOMC), and we may see a growing number of central bank officials push for a 2016 rate-hike especially as the U.S. economy approaches ‘full-employment.’ However, Chair Janet Yellen may try to buy more time at the next quarterly meeting in September as the central bank reiterates ‘market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.’

Expectations: Bearish Argument/Scenario

ReleaseExpectedActual
U. of Michigan Confidence (AUG P)91.590.4
Advance Retail Sales (MoM) (JUL)0.4%0.0%
Producer Price Index ex Food & Energy (YoY) (JULL)1.2%0.7%

Easing input costs paired with the slowdown in private-sector consumption may drag on consumer prices, and signs of waning price growth may weigh on the greenback as market participants push out bets for the next Fed rate-hike.

Risk: Bullish Argument/Scenario

ReleaseExpectedActual
NFIB Small Business Optimism (JUL)94.594.6
Non-Farm Payrolls (JUL)180K255K
Core Personal Consumption Expenditure (2Q A)1.7%1.7%

Nevertheless, the pickup in business confidence accompanied by the ongoing improvement in the labor market may generate a positive development, and a strong inflation report may spark a bullish reaction in the U.S. dollar as it fuels interest-rate expectations.

How To Trade This Event Risk(Video)

Bearish USD Trade: Headline & Core Inflation Narrow in July

  • 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. Consumer Price 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 the opposite direction.

Potential Price Targets For The Release

EUR/USD Daily

EUR/USD Daily Chart
  • EUR/USD may further retrace the decline from the May high (1.1615) as the pair appears to be breaking out of the wedge/triangle formation carried over from June, with a break of the 100-Day SMA (1.1226) opening up the next topside hurdle around 1.1270 (38.2% retracement) to 1.1290 (23.6% retracement).
  • Key Resistance: 1.1760 (61.8% retracement) to 1.1810 (38.2% retracement)
  • Key Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)

Check out the short-term technical levels that matter for EUR/USD heading into the report!

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

PeriodData ReleasedEstimateActualPips ChangePips Change
JUN 201607/15/2016 12:30 GMT1.1%1.0%-58-103

June 2016 U.S. Consumer Price Index (CPI)

EUR/USD 5-Minute

EUR/USD Chart

The U.S. Consumer Price Index (CPI) held steady at an annualized 1.0% for the second consecutive month in June, while the core rate of inflation unexpectedly picked up to 2.3% from 2.2% during the same period to match the fastest rate of growth for 2016. A deeper look at the report showed prices for apparel slipped 0.4% in June, with food costs narrowing 0.1%, while transportation costs increased 0.6%, which was accompanied by a 1.3% rise in energy prices. EUR/USD slipped below the 1.1100 as the slew of U.S. data prints showed Retail Sales expanding 0.6% in June, with the pair struggling to hold its ground throughout the day as it closed at 1.1028.

Get our top trading opportunities of 2016 HERE

Read More:

USD/CAD Technical Analysis: Macro Now Favoring a Breakdown?

Gold Prices Wedging into Consolidation Near Resistance

USDOLLAR Short Term Technical Update

S&P 500: Notches New Record High, Short-term Techs in Focus

--- Written by David Song, Currency Analyst

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

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

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