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

Fresh updates to the U.S. Consumer Price Index (CPI) may fuel the recent rebound in EUR/USD as the headline reading is expected to narrow to 2.4% from 2.7% per annum in August.

Image of DailyFX economic calendar

Even though the Federal Open Market Committee (FOMC) appears to be on track to further normalize monetary policy, signs of easing price growth may drag on the U.S. dollar as it curbs the central bank’s scope to extend the hiking-cycle. As a result, limited threat for above-target inflation may force the FOMC to soften its hawkish tone, and Chairman Jerome Powell & Co. may continue to project a longer-run interest rate of 2.75% to 3.00% especially as the ongoing shift in U.S. trade policy clouds the economic outlook.

However, an unexpected uptick in the CPI may put pressure on the Fed to step up the pace of policy normalization as the economy sits at full-employment, and indications of faster inflation may curb the recent recovery in EUR/USD as it boosts bets for another rate-hike in 2018. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

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

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

AUG

2018

09/13/2018 12:30:00 GMT

2.8%

2.7%

+71

+71

August 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) narrowed more than expected in August, with the headline reading slipping to 2.7% from 2.9% per annum the month prior, with the core rate of inflation highlighting a similar dynamic as the figure crossed the wires at 2.2% amid forecasts for a 2.4% print. A deeper look at the report showed the weakness was led by a 1.6% decline in the cost of apparel, with prices for medical care also falling 0.2% in August, while transportation costs increased another 0.9% during the same period on the back of higher energy prices.

The batch of lackluster data prints dragged on the greenback, with EUR/USD coming off of the 1.1620 region to close the day at 1.1690. Review the DailyFX Advanced Guide for Trading the News to learn our 8 step strategy.

EUR/USD Daily Chart

Image of eurusd daily chart
  • Broader outlook for EUR/USD remains tilted to the downside amid the series of failed attempts to break/close above the 1.1810 (61.8% retracement) hurdle, but the recent decline in the exchange rate appears to have stalled ahead of the 1.1390 (61.8% retracement) to 1.1400 (50% expansion) region as the Relative Strength Index (RSI) reverses course ahead of oversold territory.
  • In turn, the 1.1640 (23.6% expansion) to 1.1680 (50% retracement) now sits on the radar, with a break/close above the stated region raising the risk for at the 1.1810 (61.8% retracement) hurdle.

For more in-depth analysis, check out the Q4 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.