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

Updates to the U.S. Consumer Price Index (CPI) may sap the near-term rebound in EUR/USD as the headline and core reading for inflation are projected to pick up in May.

Image of DailyFX economic calendar

Data prints pointing to heightening price pressures may push the Federal Open Market Committee (FOMC) to signal a more aggressive approach in normalizing monetary policy, and the central bank may continue to prepare U.S. households and businesses for higher borrowing-costs as ‘the Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate.’ As a result, indications of stronger inflation may heighten the appeal of the greenback as it fuels expectations for four Fed rate-hikes in 2018.

However, a batch of below-forecast prints may fuel the near-term rebound in EUR/USD as it encourages the FOMC to tolerate above-target inflation, and Chairman Jerome Powell and Co. may continue to project a neutral Fed Funds rate of 2.75% to 3.00% as ‘inflation on a 12-month basis is expected to run near the Committee's symmetric 2 percent objective over the medium term.Sign up and join DailyFX Currency Analyst David Song LIVE to cover the U.S. CPI report.

Impact that the U.S. CPI report has had on EUR/USD during the last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

APR

2018

05/10/2018 12:30:00 GMT

2.5%

2.5%

April 2018 U.S. Consumer Price Index (CPI)

EUR/USD 10-Minute Chart

Image of EUR/USD 5-minute chart

The headline reading for U.S. consumer prices climbed to an annualized 2.5% from 2.4% in March, while the core rate of inflation held steady at 2.1% amid projections for a 2.2% print. A deeper look at the report showed energy prices increased 1.4% in April to lead the advance, with the cost for apparel rebounding 0.3% during the same period, while the cost for large-ticket items narrowed during the month amid a 1.6% decline in the price for used cars & trucks.

The mixed developments dragged on the greenback, with EUR/USD climbing above the 1.1900 handle to close the day at 1.1916. Learn more with the DailyFX Advanced Guide for Trading the News.

EUR/USD Daily Chart

Image of EURUSD daily chart
  • Keep in mind the broader outlook for EUR/USD remains tilted to the downside following the break of the November-low (1.1554), but recent price action raises the risk for a larger recovery especially as the Relative Strength Index (RSI) breaks out of the bearish formation from earlier this year.
  • Even though EUR/USD fails to extend the recent series of higher highs & lows, a close above the 1.1790 (23.6% retracement) to 1.1810 (61.8% retracement) raises the risk for a move towards 1.1940 (23.6% retracement) to 1.1970 (23.6% expansion), with the next region of interest coming in around 1.2060 (50% retracement).

For more in-depth analysis, check out the Q2 Forecast for EUR/USD

Additional Trading Resources

New to the currency market? Want a better understanding of the different approaches for trading? Start by downloading and reviewing the DailyFX Beginners Guide!

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader series on how to effectively use leverage along with other best practices that any trader can follow.

--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.