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

The U.S. Consumer Price Index (CPI) may undermine the recent rebound in EUR/USD as the headline reading is expected to hold steady at 1.6% in February.

Image of DailyFX economic calendar

What’s more is that the core rate of inflation is projected to print 2.2% for the fourth consecutive month, and signs of sticky price growth may spark a bullish reaction in the U.S. dollar as it put pressure on the Federal Reserve to bring back the hawkish forward-guidance for monetary policy.

As a result, the Federal Open Market Committee (FOMC) may have a difficult time in abandoning the hiking-cycle even though Chairman Jerome Powellasserts that the central bank won’t ‘overreact’ to above-target inflation, and the Summary of Economic Projections (SEP) may renew bets for a rate-hike if Fed officials continue to forecast a longer-run interest rate forecast of 2.75% to 3.00%.

However, a dismal development may encourage the FOMC to endorse a wait-and-see approach throughout the first-half of 2019 as ‘some risks to the downside had increased,’ and the dollar may face a more bearish fate over the near-term should the data prints keep the Fed on track to halt the hiking-cycle. 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 print

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JAN

2019

02/13/2019 13:30:00 GMT

1.5%

1.6%

-21

-46

January 2019 U.S. Consumer Price Index (CPI)

EUR/USD 5-Minute Chart

Image of eurusd 5-minute chart

Updates to the U.S. Consumer Price Index (CPI) showed the headline reading narrowing to 1.6% from 1.9% per annum in December, while the core rate of inflation unexpectedly held steady at 2.2% for the third consecutive month in January. A deeper look at the report showed the stickiness was led by a 1.1% in the cost for apparel, with prices for food increasing 0.2% during the same period, while transportation costs fell 1.3% on the back of lower energy prices.

The greenback gained ground following the above-forecast CPI print, with EUR/USD slipping below the 1.1300 handle to close the day at 1.1260. 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 as the exchange rate clears the 2018-low (1.1216), but recent price action raises the risk for a larger rebound as euro-dollar carves a fresh series of higher highs & lows after the failed attempt to break/close below the Fibonacci overlap around 1.1190 (38.2% retracement) to 1.1220 (7.86% retracement).
  • In turn, the 1.1270 (50% expansion) to 1.1290 (61.8% expansion) area is back on the radar, with a break/close above the stated region raising the risk for a move towards 1.1340 (38.2% expansion).

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.