Weak Euro-Zone Core CPI to Drag on EUR/USD Rebound
- Core Rate of Inflation to Hold Steady at 1.2% per Annum for Third Month.
Trading the News: Euro-Zone Consumer Price Index (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||Pips Change|
|08/31/2017 09:00:00 GMT||1.4%||1.5%||-22||+12|
August 2017 Euro-Zone Consumer Price Index (CPI)
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 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
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 firstname.lastname@example.org. Follow me on Twitter at @DavidJSong.
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