EUR/USD: Trading the US Core CPI August 2015

US Core CPI measures the change in the price of goods and services charged to consumers. A reading which is higher than the market forecast is bullish for the dollar.

Update: US core inflation 1.8% y/y, monthly figures disappoint – USD rises after the initial dip

Here are all the details, and 5 possible outcomes for EUR/USD.

Published on Wednesday at 12:30 GMT.

Indicator Background

Analysts consider CPI one of the most important economic indicators, and the release of US Core CPI can have a major impact on the direction of EUR/USD.

US Core CPI edged higher in June, posting a gain of 0.2% which matched the forecast. Another 0.2% gain is expected in the July report.

Sentiments and levels

We are seeing opposite forces pulling on the EUR/USD. On one hand, the euro is becoming the currency of choice in times of trouble as we’ve clearly seen in China with the yuan devaluation crisis. As well, the crisis in Greece has not been resolved. On the other hand, monetary policy divergence still clearly points down: a September hike in the US seems more probable with stronger PPI and decent retail sales, while in the euro-zone we are still seeing a long road to a real recovery. QE in the euro-zone is here to stay, as inflation shows and as the ECB has made clear. So, overall sentiment is neutral on EUR/USD towards this release.

Technical levels, from top to bottom: 1.1290, 1.1215, 1.1113, 1.1050, 1.0865, and 1.0810.

5 Scenarios

  1. Within expectations: -0.1% to +0.5%. In this scenario, EUR/USD could show some slight fluctuation, but it is likely to remain within range, without breaking any levels.
  2. Above expectations: +0.6% to +0.9%: A stronger reading than predicted could push the pair below one support line.
  3. Well above expectations: Above +0.9%: An unexpectedly sharp rise in inflation could push EUR/USD downwards, breaking a second support line.
  4. Below expectations: -0.5% to -0.2%: A weak reading could push the pair above on resistance line.
  5. Well below expectations: Below -0.5%: A strong contraction could result in EUR/USD breaking above a second resistance line.

For more on the euro, see the EUR/USD.

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