When is the US consumer inflation (CPI report) and how could it affect EUR/USD?

US CPI Overview

Tuesday's US economic docket highlights the release of the critical US consumer inflation figures for August, scheduled later during the early North American session at 12:30 GMT. On a monthly basis, the headline CPI is anticipated to decline by 0.2% during the reported month. The yearly rate is also expected to decelerate to 8.1% in August from the 8.5% previous. Meanwhile, core inflation, which excludes food and energy prices, is projected to remain steady at 0.3% in August and tick higher to 6.1% on yearly basis, up from 5.9% in July.

Analysts at Deutsche Bank offered a brief preview of the report and explained: “We expect a slight decline in the headline CPI number (-0.09% MoM) but an acceleration of +0.30% in core, which would continue the pattern from July's reading (unchanged and +0.3%, respectively) which came in lower than expected. We believe the YoY headline CPI should fall five-tenths to 8.0%, while core should tick up a tenth to 6.0%.”

How Could it Affect EUR/USD?

A survey released by the Federal Reserve Bank of New York on Monday showed that consumer expectations for US inflation over the coming years declined sharply to the lowest level since October last year. This, in turn, keeps the US dollar depressed near the monthly low. A weaker US CPI print will point to a sustained decline in US inflation and fuel speculations for less aggressive policy tightening by the Fed. This could drag the US Treasury bond yields and the USD lower. This, in turn, should allow the EUR/USD pair to extend its recent recovery move from a two-decade low and build on the momentum further beyond the 1.0200 round-figure mark.

Conversely, stronger inflation figures will revive bets for faster interest rate hikes by the US central bank. This will be enough to provide a fresh lift to the greenback and attract aggressive selling around the EUR/USD pair. The immediate market reaction to the report, however, is more likely to be limited as investors now start repositioning for the FOMC monetary policy meeting on September 20-21. Nevertheless, a big divergence from the expected readings should infuse some volatility in the FX markets and allow traders to grab meaningful opportunities around the pair.

Eren Sengezer offers a brief technical outlook for the pair and outlines important technical levels: “EUR/USD is trading within a touching distance of 1.0160 (Fibonacci 61.8% retracement of the latest downtrend). In case the pair clears that hurdle and flips into support, it could test 1.0200 (psychological level, Monday high) and target 1.0245 (static level) afterwards.”

“On the downside, 1.0100 (200-period SMA, Fibonacci 50% retracement) aligns as key support. A daily close below that level could be seen as a significant bearish development and bring in additional sellers, dragging the pair back toward 1.0050 (Fibonacci 38.2% retracement) and 1.0000 (psychological level, 50-period SMA, 100-period SMA),” Eren adds further.

Key Notes

  •   US CPI Preview: Dollar set to climb on low core expectations, three scenarios

  •   US CPI Preview: Forecasts from 12 major banks, inflation begins to ease

  •   EUR/USD Forecast: Euro bulls ignore dismal sentiment data

About the US CPI

The Consumer Price Index released by the US Bureau of Labor Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchasing power of the USD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or Bearish).