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

Updates to the U.S. Consumer Price Index (CPI) may spur a bullish reaction in the dollar as the headline reading for inflation is projected to increase to 1.8% from 1.5% per annum in February.

Image of DailyFX economic calendar

Indications of sticky price growth may undermine the recent shift in the Federal Reserve’s forward-guidance for monetary policy as the fresh figures are also expected to show the core reading hold steady at 2.1% in March. In turn, a positive development may curb the recent rebound in EUR/USD as it puts pressure on the Federal Open Market Committee (FOMC) to deliver a rate-hike in 2019.

However, another unexpected downtick in both the headline and core CPI may drag on the U.S. as it encourages Fed Chairman Jerome Powell & Co. to abandon the hiking-cycle. Keep in mind, EUR/USD may face increased volatility following the U.S. data prints as the European Central Bank (ECB) President Mario Draghi hosts his press conference following the policy meeting.

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)

FEB

2019

03/12/2019 12:30:00 GMT

1.6%

1.5%

+10

+20

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

EUR/USD 5-Minute Chart

Image of eurusd 5-minute chart

The U.S. Consumer Price Index (CPI) unexpectedly narrowed to 1.5% from 1.6% per annum in January, with the core rate of inflation highlighting a similar dynamic as the index slipped to 2.1% from 2.2% during the same period. A deeper look at the report showed the weakness was led by a 1.0% drop in prescription-drug prices, with the cost for used cars and trucks falling 0.7% in February, while gas prices climbed 1.5% after falling 5.5% the month prior.

The U.S. dollar struggled to hold its ground following the below-forecast prints, with EUR/USD grinding higher throughout the day to close at 1.1286. Review the DailyFX Advanced Guide for Trading the News to learn our 8 step strategy.

EUR/USD Rate Daily Chart

Image of eurusd daily chart
  • The failed attempt to test the 2019-low (1.1176) along with the lack of momentum to close below the Fibonacci overlap around 1.1190 (38.2% retracement) to 1.1220 (78.6% retracement) may spur range-bound conditions in EUR/USD, with a break/close back above the 1.1270 (50% expansion) to 1.1290 (61.8% expansion) region raising the risk for a move towards 1.1340 (38.2% expansion).
  • Next area of interest comes in around 1.1390 (61.8% retracement) to 1.1400 (50% expansion) followed by the 1.1430 (23.6% expansion) to 1.1450 (50% retracement), which largely lines up with the March-high (1.1448).

For more in-depth analysis, check out the 2Q 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.