Never miss a story from David Song

Subscribe to recieve updates on publications
Please enter valid First Name
Please fill out this field.
Please enter valid Last Name
Please fill out this field.
Please enter valid email
Please fill out this field.
Please select a country

I’d like to receive information from Daily FX and IG about trading opportunities and their products and services via email.

Please fill out this field.

Your Forecast Is Headed to Your Inbox

But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk.

Your demo is preloaded with £10,000 virtual funds, which you can use to trade over 10,000 live global markets.

We'll email you login details shortly.

Learn More about Your Demo

You are subscribed to David Song

You can manage you subscriptions by following the link in the footer of each email you will receive

An error occurred submitting your form.
Please try again later.

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

Updates to the U.S. Consumer Price Index (CPI) may generate a larger pullback in EUR/USD as the headline and core reading for inflation are expected to pick up in June.

Image of DailyFX economic calendar

Signs of heightening price pressures may boost the appeal of the greenback as it puts pressure on the Federal Open Market Committee (FOMC) to further normalize monetary policy over the coming months, and the central bank may show a greater willingness to implement four rate-hikes in 2018 as Chairman Jerome Powell and Co. ‘generally judged that, with the economy already very strong and inflation expected to run at 2 percent on a sustained basis over the medium term, it would likely be appropriate to continue gradually raising the target range for the federal funds rate to a setting that was at or somewhat above their estimates of its longer-run level by 2019 or 2020.

As a result, the FOMC may continue to prepare U.S. households and businesses for higher borrowing-costs at the next meeting on August 1, but a lackluster development may spark a bearish reaction in the greenback as it dampens the central bank’s scope to extend the hiking-cycle.

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)

MAY

2018

06/12/2018 12:30:00 GMT

2.8%

2.8%

+15

-34

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

EUR/USD 5-Minute Chart

Image of EURUSD 5-Minute Chart

The U.S. Consumer Price Index (CPI) was largely in-line with market expectations as the headline reading increased 2.8% per annum in May, while the core rate highlighting a similar dynamic as the reading climbed to 2.2% from 2.1% in April. However, a deeper look at the report showed Real Average Hourly Earnings were flat in May after expanding 0.2% the month prior, while Real Average Weekly Earnings narrowing to 0.3% from a revised 0.5% during the same period.

The initial reaction to mixed data prints were short-lived, with EUR/USD consolidating throughout the North American trade to end the day at 1.1745. Sign up and join DailyFX Currency Analyst David Song LIVE to cover the fresh updates to the CPI report.

EUR/USD Daily Chart

Image of EURUSD daily chart
  • EUR/USD stands at risk of facing range-bound prices as it snaps the recent series of higher highs & lows following the failed attempt to test the June-high (1.1852).
  • Lack of momentum to test the 1.1810 (61.8% retracement) region may pave the way for a larger pullback, with a break/close below the 1.1640 (23.6% expansion) to 1.1680 (50% retracement) region bringing the June-low (1.1508) on the radar, which lines up with the 1.1510 (38.2% expansion) hurdle.

For more in-depth analysis, check out the Q3 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.