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Weak Euro-Zone Core CPI to Drag on EUR/USD Rebound

Weak Euro-Zone Core CPI to Drag on EUR/USD Rebound

David Song, Strategist

- Euro-Zone Consumer Price Index (CPI) to Uptick for Second Month to Annualized 1.6%.

- Core Rate of Inflation to Hold Steady at 1.2% per Annum for Third Month.

- See How Shifts in EUR/USD Retail Positioning are Impacting Trend- Learn More About Sentiment.

Trading the News: Euro-Zone Consumer Price Index (CPI)

Euro-Zone CPI

Even though the Euro-Zone Consumer Price Index (CPI) is anticipated to pick up for the second consecutive month in September, weakness in the core rate of inflation may undermine the near-term rebound in EUR/USD as it encourages the European Central Bank (ECB) to carry the highly accommodative stance into 2018.

The ECB may carry the quantitative easing (QE) program beyond the December deadline as ‘measures of underlying inflation have ticked up moderately in recent months, but have yet to show convincing signs of a sustained upward trend.’ In turn, President Mario Draghi and Co. may highlight a dovish outlook at the next meeting on October 26, but a growing number central bank officials may show a greater willingness to move away from the non-standard measure as ‘the current positive cyclical momentum increases the chances of a stronger than expected economic upswing.’

In turn, a pickup in both the headline and core CPI may spark a bullish reaction in EUR/USD as it encourages the ECB to move away from its easing-cycle.

Impact that the Euro-Zone CPI has had on EUR/USD during the previous release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

AUG A

2017

08/31/2017 09:00:00 GMT

1.4%

1.5%

-22

+12

August 2017 Euro-Zone Consumer Price Index (CPI)

EUR/USD 5-Minute

EUR/USD Chart

The advance reading for the Euro-Zone Consumer Price Index (CPI) showed the headline figure climbing an annualized 1.5% from 1.3% in July to mark the first pickup since April. Nevertheless, the core rate of inflation held steady at an annualized 1.2% for the second consecutive month in August, which was largely in-line with market expectations. The Euro struggled to hold its ground following the mixed data prints, with EUR/USD pulling back from the 1.1900 handle, but the pair regained its footing during the North American trade to end the day at 1.1909.

How To Trade This Event Risk(Video)

Bearish EUR Trade: Core Inflation Remains Subdued

  • Need a red, five-minute candle following the CPI report to favor a short EUR/USD setup.
  • If market reaction favors a bearish Euro trade, 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.

Bullish EUR Trade: Euro-Zone CPI Exceeds Market Forecast

  • Need a green, five-minute EUR/USD candle to favor a long Euro setup.
  • Carry out the same setup as the bearish Euro trade, just in reverse.

Potential Price Targets For The Release

EUR/USD Daily Chart

EUR/USD Daily Chart

Check out our EUR/USD quarterly projections in our FREE DailyFX Trading Forecasts

  • EUR/USD stands at risk for a larger pullback as both price and the Relative Strength Index (RSI) snap the bullish formations from earlier this year, with the near-term outlook capped by the 1.2130 (50% retracement) hurdle.
  • The Fibonacci overlap around 1.1670 (50% retracement) to 1.1680 (50% retracement) remains on the radar as it largely lines up with the August-low (1.1662), with the next downside region of interest coming in around 1.1580 (100% expansion).
  • Interim Resistance: 1.2320 (23.6% retracement) to 1.2370 (61.8% expansion)
  • Interim Support: 1.1390 (61.8% retracement) to 1.1400 (61.8% 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 40.4% of traders are net-long EUR/USD with the ratio of traders short to long at 1.48 to 1. In fact, traders have remained net-short since April 18 when EUR/USD traded near 1.07831; price has moved 9.3% higher since then. The number of traders net-long is 3.0% lower than yesterday and 18.0% higher from last week, while the number of traders net-short is 3.0% lower than yesterday and 11.4% lower from last week.

--- 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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