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Lackluster U.S. CPI, Retail Sales to Keep EUR/USD Afloat

Lackluster U.S. CPI, Retail Sales to Keep EUR/USD Afloat

David Song, Strategist

- 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)

Make Sure to Check Out the DailyFX Guides for Additional Trading Ideas!

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.

For More Updates, Join DailyFX Currency Analyst David Song for LIVE Analysis!

--- Written by David Song, Currency Analyst

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.

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

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