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

Updates to the U.S. Consumer Price Index (CPI) may fuel the recent breakout in EUR/USD as the headline reading is projected to slow to 1.9% from 2.2% per annum in November.

Image of DailyFX economic calendar

Signs of easing price pressures may encourage the Federal Reserve to retain the current policy at the next interest rate decision on January 30 as officials see ‘growth moderating ahead, and a marked slowdown in the CPI may put pressure on the central bank to conclude its hiking-cycle ahead of schedule as the uncertainty surrounding fiscal policy clouds the economic outlook.

In turn, a dismal development may spark a bearish reaction in the U.S. dollar as the Federal Reserve shows a greater willingness to adopt a wait-and-see approach in 2019, but stickiness in the core rate of inflation may ultimately spur a mixed reaction as the reading is expected to hold steady at 2.2% for the second month. 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 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

2018

12/12//2018 13:30:00 GMT

2.2%

2.2%

+10

+26

November 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 to 2.2% from 2.5% per annum in October, while the core rate of inflation climbed to 2.2% from 2.1% during the same period. The weakness in the headline reading was larger driven by a 2.2% decline in energy prices, with transportation costs also slipping 0.8%, while prices for medical care increased 0.4% after climbing 0.2% in October.

The U.S. dollar struggled to hold its ground following the mixed batch of data, with EUR/USD climbing back above the 1.1350 region to close the day at 1.1368. Review the DailyFX Advanced Guide for Trading the News to learn our 8 step strategy.

EUR/USD Daily Chart

Image of eurusd daily chart
  • Near-term outlook for EUR/USD has become more eventful as the exchange rate finally takes out the November-high (1.1500), with the close above the 1.1510 (38.2% expansion) hurdle opening up the Fibonacci overlap around 1.1640 (23.6% expansion) to 1.1680 (50% retracement).
  • Next region of interest comes in around 1.1810 (61.8% retracement), which largely lines up with the September-high (1.1815).

For more in-depth analysis, check out the 1Q 2019 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.