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

US CPI Overview

Wednesday's US economic docket highlights the release of the critical US consumer inflation figures for July, scheduled later during the early North American session at 12:30 GMT. The headline CPI is anticipated to rise by 0.2% during the reported month, down sharply from the 1.3% in June. The yearly rate is also expected to decelerate to 8.7% in July from the 9.1% previous. Meanwhile, core inflation, which excludes food and energy prices, is projected to rise by 0.5% in July and jump to 6.1% on yearly basis from 5.9% in May.

According to Eren Sengezer, European Session Lead Analyst at FXStreet: “A CPI print of 8.7% in July would suggest that inflation may have peaked in June. A reading of 8.8%, however, would show that prices continued to rise in July, regardless of the decline in the annual inflation rate. Investors will also pay close attention to the Core CPI figure, which excludes volatile food and energy prices.”

How Could it Affect EURUSD?

Ahead of the key release, modest US dollar weakness assists the EUR/USD pair to gain positive traction for the third successive day. A stronger-than-expected US CPI print would reaffirm market bets for another 75 bps rate hike move at the September FOMC meeting. This, in turn, would push the US Treasury bond yields higher, along with the buck.

Conversely, a softer reading would push back expectations for a more aggressive policy tightening by the Fed and exert some downward pressure on the greenback. The immediate market reaction, however, is likely to remain short-lived amid recession fears, which might continue to act as a tailwind for the safe-haven USD. This, along with growing concerns over the energy crisis in Europe, suggests that the path of least resistance for the EUR/USD pair is to the downside.

Eren Sengezer offers a brief technical outlook for the EURUSD pair and outlines important technical levels: “The symmetrical triangle that seems to have formed on the four-hour chart confirms the view that the pair is about to break out of its range. On the upside, 1.0230/1.0240 (Fibonacci 38.2% retracement of the latest downtrend, 200-period SMA on the four-hour chart) aligns as key resistance. With a weak CPI print, the pair could rise above that level and target 1.0300 (psychological level, Fibonacci 50% retracement) and 1.0370 (Fibonacci 61.8% retracement.”

“Significant support is located at 1.0200 (psychological level, 100-period SMA, 50-period SMA). If the dollar regathers strength on a hot inflation report, the pair could pierce through that support and extend its decline toward 1.0150 (Fibonacci 23.6% retracement) and 1.0100 (psychological level, static level),” Eren adds further.

Key Notes

  •   US CPI Preview: It is the hard core that counts, five scenarios for critical inflation data

  •   US July CPI Preview: What is the base effect and why it matters

  •   EUR/USD Forecast: Breakout imminent on US inflation 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).