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. The headline CPI is expected to decelerate a bit to 0.4% during the reported month from the 0.5% rise recorded in July. The yearly rate is also anticipated to have edged lower to 5.3% in August from 5.4% previous, which matched the biggest monthly gains since August 2008. Meanwhile, core inflation, which excludes food and energy prices, is projected to rise 4.2% in August from a year ago against the 4.3% increase in the previous month.
According to analysts at ING: “Headline CPI is likely to remain close to 5.5% YoY with core inflation remaining at 4.3%. Given ongoing supply issues, rising labour costs and a clear sense of strong corporate pricing power, we see little reason for inflation to fall meaningfully before 2Q 2022. The risk is that rising inflation expectations keep it higher. Consequently, we continue to look for the Federal Reserve to conduct a swift taper with asset purchases ending in 2Q and interest rates increasing from late 2022 onwards.”
How Could it Affect EUR/USD?
The data could set the tone for markets ahead of the upcoming FOMC meeting on September 20-21. The US Producer Price Index (PPI) for August recorded the largest gain since November 2010 and indicated that higher inflation could persist for some time. A stronger US CPI print will reaffirm expectations that the Fed will begin rolling back its massive pandemic-era stimulus sooner rather than later. This would be enough to provide a fresh lift to the US dollar and pave the way for an extension of the EUR/USD pair's recent pullback from levels just above the 1.1900 mark.
Conversely, a softer print – though seems unlikely – could negatively affect the USD, though the market reaction might turn out to be short-lived ahead of the next week's key event risk. This, in turn, suggests that the path of least resistance for the EUR/USD pair is to the downside.
Meanwhile, Yohay Elam, FXStreet's own Analyst offered a brief technical outlook for the EUR/USD pair: “Euro/dollar has risen above the 100 and 200 Simple Moving Averages (SMAs), a bullish sign. On the other hand, it trades below the 50 SMA. Momentum has flipped to the upside, but only just.”
Yohay also provided important technical levels to trade the major: “Some resistance is at the daily high of 1.1830, and that is followed by the stronger resistance line of 1.1880, which capped a recovery attempt earlier this month. The next level to watch is 1.1910. Support awaits at 1.18, which cushioned EUR/USD last week, and then by the weekly low of 1.1770. Further down, 1.1740 and 1.1725 are in play.”
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 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).
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