- U.S. Consumer Price Index (CPI) to Slow for Second Consecutive Month, Core Rate to Hold Steady.

- Retail Sales to Rebound 0.6% After Contracting for Last Two Months.

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

U.S. Consumer Price Index

A rebound in U.S. Retail Sales accompanied by a signs of sticky inflation may boost the appeal of the greenback, but another series of lackluster data prints may prop up the EUR/USD exchange rate as it drag on interest-rate expectations.

Why Is This Event Important:

With Fed Fund Futures now highlight a greater than 80% probability for a June rate-hike, bets for higher borrowing-costs may keep the dollar afloat throughout the remainder of the month, and the central bank may unveil a more detailed exit strategy in the second-half of 2017 as officials show a greater willingness to unload the balance sheet. However, indications of a slowing recovery may push the Federal Open Market Committee (FOMC) to buy more time, and Chair Janet Yellen and Co. may continue to project a terminal rate close to 3.00% as ‘market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

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Impact that the CPI report has had on EUR/USD during the previous print

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAR

2017

04/14/2017 12:30:00 GMT

2.6%

2.4%

+16

-9

March 2017 U.S. Consumer Price Index (CPI)

EUR/USD 5-Minute

EUR/USD Chart

The U.S. Consumer Price Index (CPI) narrowed to an annualized 2.4% from 2.7% in February, with the core rate of inflation highlighting a similar behavior as the reading slipped to 2.0% from 2.2% during the same period. A separate report showed Retail Sales narrowed another 0.2% in March, with the weakness led by a 1.2% decline in demand for motor vehicle & parts, while discretionary spending for clothing bounced back 1.0% after falling 2.7% in February. The greenback struggled to hold its ground followed the batch of dismal data, with EUR/USD climbing to a session high of 1.0630, but the market reaction was short-lived as the pair ended the day at 1.0602.

How To Trade This Event Risk(Video)

Bearish USD Trade: Retail Sales, CPI Continue to Disappoint

  • Need a green, five-minute candle following the batch of data prints to consider a long EUR/USD trade.
  • If market reaction favors a bearish dollar trade, buy EUR/USD with two separate lots.
  • Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward.
  • Move stop to breakeven on remaining position once initial target is met, set reasonable limit.

Bullish USD Trade: Household Spending Picks Up, Core Inflation Holds Steady

  • Need a red, five-minute EUR/USD candle to favor a long dollar trade.
  • Carry out the same setup as the bearish dollar setup, just in the opposite direction.

Potential Price Targets For The Release

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using Trading View

  • The near-term outlook for EUR/USD remains constructive as price & the Relative Strength Index (RSI) extend the bullish formations carried over from late-2016, but the pair stands at risk of filling the gap following the first round of the French presidential election amid the lack of momentum to break above the 1.1020 (50% expansion) hurdle.
  • In addition, the RSI appears to be on course to test trendline support after the string of failed attempts to push into overbought territory, with a move below the 200-Day SMA (1.0832 opening up the first downside region of interest around 1.0780 (100% expansion) to 1.0790 (38.2% expansion) followed by 1.0660 (50% expansion) to 1.0680 (78.6% expansion).
  • Interim Resistance: 1.1140 (23.6% expansion) to 1.1160 (38.2% expansion)
  • Interim Support: 1.0470 (38.2% expansion) to 1.0500 (50% expansion)

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IG Sentiment

Retail trader data shows 37.6% of traders are net-long EUR/USD with the ratio of traders short to long at 1.66 to 1. In fact, traders have remained net-short since April 18 when EUR/USD traded near 1.06042; price has moved 2.5% higher since then. The number of traders net-long is 11.1% lower than yesterday and 31.2% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 8.9% lower from last week.For More Information on Retail Sentiment, Check Out the New Gauge Developed by DailyFX Based on Trader Positioning.

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--- Written by David Song, Currency Analyst

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