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- U.S. Consumer Price Index (CPI) to Narrow to Annualized 2.0% from 2.2% in September.

- Core Rate of Inflation to Hold Steady at 1.7% per Annum for Six Consecutive Months.

- U.S. Retail Sales to Hold Flat After Expanding 1.6% in September.

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

U.S. CPI

A downtick in the U.S. Consumer Price Index (CPI) paired with a soft reading for Retail Sales may fuel the near-term recovery in EUR/USD as it undermines the Federal Reserve’s scope to further normalize monetary policy in 2018.

Even though the Federal Open Committee (FOMC) appears to be on course to deliver another rate-hike in December, signs of subdued price pressures may spark a bearish reaction in the U.S. dollar as it encourages central bank officials to trim the longer-run forecast for the benchmark interest rate. With that said, the FOMC under current Governor Jerome Powell may run the risk of completing the hiking-cycle ahead of schedule as ‘inflation on a 12-month basis is expected to remain somewhat belowthe 2% target.

Nevertheless, an unexpected uptick in U.S. price growth may heighten the appeal of the greenback as it puts pressure on the FOMC to implement higher borrowing-costs over the coming months.

Impact that the U.S. Consumer Price Index (CPI) 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)

SEP

2017

10/13/2017 12:30:00 GMT

2.3%

2.2%

+60

+9

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

EUR/USD 5-Minute Chart

EUR/USD Chart

The U.S. Consumer Price Index (CPI) climbed to an annualize 2.2% from 1.9% in August, while the core rate of inflation held steady at 1.7% for the fifth consecutive month. A deeper look at the report showed energy prices climbing 6.1% in September to lead the advance, with transportation costs also rising 2.8%, while prices for apparel narrowed 0.1% after rising 0.1% the month prior.

EUR/USD spiked above the 1.1850 region following the below-forecast CPI print, but the market reaction was short-lived, with the pair consolidating throughout the North American trade to end the day at 1.1818. Looking to trade the slew of U.S. data but don’t have a strategy? Download & review theFree DailyFX Advanced Guide for Trading the News to learn our 8 step strategy.

EUR/USD Daily Chart

EUR/USD Daily Chart
  • EUR/USD comes up against channel resistance following the failed attempt to close below the 1.1580 (100% expansion) hurdle, with the broader outlook mired by the head-and-shoulders formation carried over from back in September.
  • Need a move back below the neckline around 1.1670 (50% retracement) to see EUR/USD extends the decline from the 2017-high (1.2092).
  • Closely watching the Relative Strength Index (RSI) as it pierces through trendline resistance, with a break/close above the 1.1810 (61.8% retracement) to 1.1860 (161.8% expansion) region bringing the topside targets back on the radar as it removes the threat for a key reversal.
  • Next topside hurdle comes in around 1.1960 (38.2% retracement) followed by the 1.2130 (50% retracement) region.

Want to watch the reaction to U.S. CPI & Retail Sales? Sign up & Join DailyFX Currency Strategist Christopher Vecchio for LIVE coverage!

--- Written by David Song, Currency Analyst

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

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