US CPI Overview

Thursday's US economic docket highlights the release of the critical US consumer inflation figures for January, scheduled later during the early North American session at 13:30 GMT. The headline CPI is anticipated to come in at 0.5% during the reported month, unchanged from December. The yearly rate, however, is projected to reach a fresh 39-year high and accelerate to 7.3% in January from 7.0% recorded at the end of 2021. Meanwhile, core inflation, which excludes food and energy prices, is anticipated to rise to 5.9% from a year ago as against 5.5% in the previous month.

Joseph Trevisani, Senior Analyst at FXStreet, explains: “The pandemic lockdown and the subsequent flood of liquidity from the Federal Reserve and the US government has combined, a year later, with labor and material shortages for manufacturing and a supply chain tangle that has stretched around the world, to produce the highest American consumer inflation rate in four decades.”

How Could it Affect EUR/USD?

The markets seem convinced that the US central bank would adopt a more aggressive policy response to combat stubbornly high inflation. A stronger than expected CPI print would further boost bets for a 50 bps Fed rate hike in March and push the US bond yields higher, along with the US dollar. Conversely, a softer reading – though seems unlikely – might do little to calm market fears about a faster policy tightening by the Fed or prompt any meaningful selling around the greenback. This, in turn, suggests that the path of least resistance for the EUR/USD pair is to the downside, though a more hawkish ECB last week should help limit deeper losses.

Meanwhile, Eren Sengezer, Editor at FXStreet, offered a brief technical outlook and outlined important levels to trade the EUR/USD pair: “The Relative Strength Index (RSI) indicator on the four-hour chart is sitting above 50 early Thursday, pointing to a bullish tilt in the near term. However, the pair might need to break above 1.1480 (static level) to convince buyers of another leg higher. Above that level, 1.1500 (psychological level, static level) aligns as the next resistance before 1.1550..”

“On the downside, supports ate located at 1.1400 (psychological level, Fibonacci 23.6% of the latest uptrend), 1.1350 (Fibonacci 38.2% retracement, 200 period-SMA) and 1.1320 (100-period SMA),” Eren added further.

Key Notes

  •   US Consumer Price Index January Preview: Is this inflation different?

  •   US Inflation Preview: Core CPI above 6% could spark next dollar rally

  •   EUR/USD Forecast: Euro holds its ground ahead of US CPI

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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