- Headline U.S. Consumer Price Index (CPI) to Expand for First Time Since December.
- Core Rate of Inflation to Hold at Annualized 1.8% for Third Consecutive Month.
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Trading the News: U.S. Consumer Price Index (CPI)
A rebound in the headline U.S. Consumer Price Index (CPI) may boost the appeal of the greenback and spur a near-term pullback in EUR/USD as it puts increased pressure on the Fed to normalize monetary policy sooner rather than later.
What’s Expected:
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Why Is This Event Important:
Signs of stronger price growth may keep the Fed on course to raise the benchmark interest rate later this year, but a continuation of the disinflationary environment may encourage the central bank to retain the zero-interest rate policy (ZIRP) beyond 2015 in an effort to encourage a more sustainable recovery.
Expectations: Bullish Argument/Scenario
Release | Expected | Actual |
U. of Michigan Confidence (JUN P) | 91.2 | 94.6 |
Advance Retail Sales (MoM) (MAY) | 1.2% | 1.2% |
NFIB Small Business Optimism (MAY) | 97.2 | 98.3 |
Improved confidence along with the rebound in household spending may encourage U.S. firms to boost consumer prices, and a marked rebound in the headline reading may spark a bullish reaction in the dollar as it fuels interest rate expectations.
Risk: Bearish Argument/Scenario
Release | Expected | Actual |
Producer Price Index ex Food & Energy (YoY) (MAY) | 0.7% | 0.6% |
ISM Non-Manufacturing (MAY) | 57.0 | 55.7 |
Personal Consumption Expenditure- Core (YoY) (APR) | 1.4% | 1.2% |
However, subdued input costs paired with the persistent slack in the real economy may continue to drag on price growth, and a dismal CPI print may generate a further near-term advance in EUR/USD as market participants push back for the Fed liftoff.
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How To Trade This Event Risk(Video)
Bullish USD Trade: U.S. CPI Rebounds 0.1% or Greater
- Need to see red, five-minute candle following the release to consider a short trade on EUR/USD.
- If market reaction favors a bullish dollar trade, sell EUR/USD with two separate position.
- Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
- Move stop to entry on remaining position once initial target is hit; set reasonable limit.
Bearish USD Trade: Consumer Price Growth Disappoints
- Need green, five-minute candle to favor a long EUR/USD trade.
- Implement same setup as the bullish dollar trade, just in reverse.
Potential Price Targets For The Release
EURUSD Daily
Chart - Created Using FXCM Marketscope 2.0
- Despite the more cautious tone coming out of the Federal Reserve, EUR/USD may continue to face range-bound prices over the near-term as it fails to break out of the monthly opening range.
- DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short EUR/USD since March 19, with the ratio approaching extremes as it slips to -2.43.
- Interim Resistance: 1.1510 (61.8% expansion) to 1.1532 (February high)
- Interim Support: 1.0970 (38.2% expansion) to 1.1000 (50% retracement)
Read More:
USDOLLAR Daily RSI Sequence Serves as a Warning
GBP/USD Bullish Outlook to Gather Pace on Hawkish BoE Rhetoric
Impact that US CPI 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) |
APR 2015 | 05/22/2015 12:30 GMT | -0.2% | -0.2% | -144 | -165 |
March 2015 U.S. Consumer Price Index
The U.S. Consumer Price Index (CPI) contracted an annualized 0.2% in April, while the core rate of inflation unexpectedly held steady at 1.8% amid forecasts for a 1.7% print. The stickiness the core CPI may keep the Fed on course to remove the zero-interest rate policy (ZIRP) later this year, but fears of a slower recovery may spark a further delay in the normalization cycle as the central bank largely remains ‘data dependent.’ The greenback strengthened following the release, with EUR/USD dipping below 1.1050 to end the session at 1.1008.
--- Written by David Song, Currency Analyst and Shuyang Ren
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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