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Below-Forecast U.S. CPI, Retail Sales to Fuel EUR/USD Rate Rally

Below-Forecast U.S. CPI, Retail Sales to Fuel EUR/USD Rate Rally

David Song, Strategist

- U.S. Consumer Price Index (CPI) to Slow to Annualized 2.1% from 2.2% in November.

- Core Inflation to Hold Steady at 1.7% per Annum, Retail Sales to Increase 0.5% .

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

U.S. CPI

Fresh developments coming out of the U.S. economy may fuel the near-term rally in EUR/USD as the Consumer Price Index (CPI) is projected to slow in December, while Retail Sales are expected to increase 0.5% following the 0.8% rise in November.

A set of lackluster data prints is likely drag on the U.S. dollar as it curbs bets for an imminent rate-hike, and the Federal Open Market Committee (FOMC) may largely endorse a wait-and-see approach at the next rate decision on January 31 as inflation continues to run below the 2% target.

Signs of subdued price growth may also spark a growing dissent within the central bank as ‘some participants observed that there was a possibility that inflation might stay below the objective for longer than they currently expected,’ with the FOMC running the risk of completing its hiking-cycle ahead of schedule especially as ‘other persistent factors may be holding down inflation, which would present challenges for the Committee in promoting a return of inflation to 2 percent over the medium term.’

Nevertheless, a set of positive U.S. data prints may tame the recent pickup in EUR/USD, with the pair still at risk of carving a double-top formation amid the failed attempt to clear the September-high (1.2092). New to trading? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.

Impact that the U.S. 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)

NOV

2017

12/13/2017 13:30:00 GMT

2.2%

2.2%

+26

+91

November 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 annualized 2.2% from 2.0% in October, while the core rate of inflation unexpectedly slipped to 1.7% from 1.8% during the same period to mark the first slowdown since May. A deeper look at the report showed a 3.9% rise in Energy prices, with transportation costs also climbing 1.9%, while prices for Apparel fell 1.3% in November.

The mixed detailed surrounding the inflation report dragged on the U.S. Dollar, with EUR/USD climbing above the 1.1750 region to end the day at 1.1826. For additional resources, download and review the FREE DailyFX Advanced Guide for Trading the News to learn our 8 step strategy.

EUR/USD Daily Chart

EUR/USD Daily Chart

Want more insight? Join DailyFX Currency Analyst David Song LIVEto cover the market reaction to the U.S. CPI & Retail Sales report.

  • EUR/USD appears to be making another attempt to test the September-high (1.2092) as it snaps the series of lower highs & lows from earlier this week, with both price and the Relative Strength Index (RSI) on course to extend the bullish formations carried over from late-2017.
  • Break above the September-high (1.2092) would negate the threat for a double-top, with the next topside hurdle coming in around 1.2130 (50% retracement) followed by the 1.2230 (50% retracement) region.
  • May see EUR/USD stage a more meaningful advance if the RSI pushes into overbought territory as it suggests the bullish momentum is gathering pace.

--- 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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