- U.S. Consumer Price Index (CPI) to Climb to Annualized 1.8%- First Uptick Since February.

- Core Rate of Inflation to Hold Steady at 1.7% per Annum.

-Sign up and Join DailyFX Currency Analyst David Song LIVE to Cover the U.S. CPI Report.

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

U.S. CPI

An uptick in the U.S. Consumer Price Index (CPI) may stoke a near-term pullback in EUR/USD as signs of rising inflation puts pressure on the Federal Open Market Committee (FOMC) to further normalize monetary policy in 2017.

Why Is This Event Important:

Even though Fed Fund Futures largely price a 50% probability for a move in December, Chair Janet Yellen and Co. may stay on course to deliver three rate-hikes in 2017 as central bank officials expect to achieve the 2% target for inflation over the policy horizon. In turn, the FOMC may endorse a more aggressive approach at the next interest rate decision on September 20 especially as the FOMC ‘expects to begin implementing its balance sheet normalization program relatively soon.’

However, another dismal development may spark a bearish reaction in the greenback as it encourages the Fed to preserve the current policy throughout the remainder. As a result, the U.S. dollar may continue to exhibit a bearish behavior over the coming months if they key data prints coming out of the real economy drag on interest-rate expectations.

Impact that the U.S. 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)

JUN

2017

07/14/2017 12:30:00 GMT

1.7%

1.6%

+28

+51

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

EUR/USD 5-Minute Chart

EUR/USD Chart

DailyFX 3Q Forecasts Are Now Available

The U.S. Consumer Price Index (CPI) slowed to an annualized 1.6% from 1.9% in May, while the core rate of inflation held steady at 1.7% for the second consecutive month. A deeper look at the report showed the weakness was led by a 1.6% decline in energy prices, with transportation costs narrowing 0.7% in June, while prices for food & beverages held flat during the same period. The greenback lost ground following the weaker-than-expected CPI report, with EUR/USD climbing above the 1.1450 region to end the day at 1.1465.

How To Trade This Event Risk(Video)

Bullish USD Trade: Headline and Core Inflation Picks Up in July

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

Bearish USD Trade: CPI Report Falls Short of Market Forecasts

  • Need a green, five-minute EUR/USD candle to consider a short dollar trade.
  • Implement the same approach as the bullish dollar position, just in the opposite direction.

Potential Price Targets For The Release

EUR/USD Daily Chart

EUR/USD Daily Chart

Chart - Created Using Trading View

  • The failed attempt to fill in the gap from January-2015 (1.2000 down to 1.1955) may generate a near-term pullback in EUR/USD especially as the Relative Strength Index (RSI) comes off of overbought territory, but the broader outlook remains constructive as both price & the momentum indicator preserve the bullish formations from earlier this year.
  • Lack of momentum to push below the 1.1670 (50% retracement) hurdle may spark a move back towards the monthly-high (1.1910) as a bull-flag formation unfolds.
  • Interim Resistance: 1.1960 (38.2% retracement) to 1.2042 (July 2012-low)
  • Interim Support: 1.0980 (78.6% retracement) to 1.1000 (38.2% expansion)

EUR/USD Retail Sentiment

EUR/USD Retail Sentiment

Track Retail Sentiment with the New Gauge Developed by DailyFX Based on Trader Positioning

Retail trader data shows 28.2% of traders are net-long EUR/USD with the ratio of traders short to long at 2.55 to 1. In fact, traders have remained net-short since April 18 when EUR/USD traded near 1.06524; price has moved 10.5% higher since then. The number of traders net-long is 5.0% higher than yesterday and 5.0% lower from last week, while the number of traders net-short is 0.8% lower than yesterday and 6.0% lower from last week.

--- Written by David Song, Currency Analyst

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

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