Weak US CPI means EUR/USD 1.05 no longer unrealistic
The US inflation report lived up to expectations in terms of market impact!
Share this:
Well, that was the sort of volatility that was so badly need and missing so far in the week! The eagerly anticipated US inflation report lived up to expectations in terms of market impact as the dollar plunged and everything else went up, including all foreign currencies, gold, bitcoin and stocks. Among the majors, the EUR/USD has finally broken out of its tight consolidation phase, suggesting more short-term gains could in the days ahead, despite all the troubles for the Eurozone.
Inflation not so hot
Driven by sharp declines in energy and gasoline prices, the 8.5% annual inflation read was relatively sharply weaker from 9.1% recorded in June. It is still uncomfortably high, but investors will take some comfort in that it was the first headline CPI reading that came in below expectation in 11 months. Here’s a succinct CPI recap by my colleague Matt Weller.
Debate about 50 or 75 bp hike will continue
The Fed’s Charles Evans wasted no time as he came out and said today's inflation data is the first positive report, but that further rate rises were warranted this and next year, predicting that the Fed Funds to top out around 4 percent. Though the probability of another 75 basis point hike in September has fallen sharply, the debate about 50 or 75 bp hike will continue for sure, and the Fed will be keen to keep that debate going until we get the next CPI and employment reports. There’s plenty of time left until the FOMC’s September 21 meeting.
Next up: UoM Consumer Sentiment (Friday)
Now that we know July was a strong month for employment, but not so strong for inflation, investors will look for signs on how the American consumer’s outlook is shaping on the economy and inflation prospects. Friday’s release of the University of Michigan’s closely-followed Consumer Sentiment and Inflation Expectations surveys will be in sharp focus. Thanks to soaring prices of everything from gas to food, consumer sentiment in the US has been dropping rapidly in recent months, mirroring the situation in Europe and the rest of the world. However, the US economy has weathered the inflation storm better than other regions, which is why the dollar has until recently been so strong. But is the momentum changing? If we see signs of a struggling US consumer, then this could hurt the dollar further.
EUR/USD finally breaks out
For those who follow my analysis articles closely, you already know that I have been quite vocal about the prospects of a EUR/USD recovery to at least 1.0350 and generally a dollar sell-off in recent weeks. Well, today the EUR/USD has hit that level and went about 15 more pips higher, before retreating somewhat. This 1.0350 level was previously a key support zone and it is now offering some resistance. However, given how long we had price coiling in a tight range prior to today’s rally, there is now a good chance the EUR/USD will continue higher. I reckon that 1.0500 is now not too an unrealistic target. However, as before, I am not very confident in anticipating a major recovery given the troubles that Europe faces with regards to its energy needs.
Well, that was the sort of volatility that was so badly need and missing so far in the week! The eagerly anticipated US inflation report lived up to expectations in terms of market impact as the dollar plunged and everything else went up, including all foreign currencies, gold, bitcoin and stocks. Among the majors, the EUR/USD has finally broken out of its tight consolidation phase, suggesting more short-term gains could in the days ahead, despite all the troubles for the Eurozone.
Inflation not so hot
Driven by sharp declines in energy and gasoline prices, the 8.5% annual inflation read was relatively sharply weaker from 9.1% recorded in June. It is still uncomfortably high, but investors will take some comfort in that it was the first headline CPI reading that came in below expectation in 11 months. Here’s a succinct CPI recap by my colleague Matt Weller.
Debate about 50 or 75 bp hike will continue
The Fed’s Charles Evans wasted no time as he came out and said today's inflation data is the first positive report, but that further rate rises were warranted this and next year, predicting that the Fed Funds to top out around 4 percent. Though the probability of another 75 basis point hike in September has fallen sharply, the debate about 50 or 75 bp hike will continue for sure, and the Fed will be keen to keep that debate going until we get the next CPI and employment reports. There’s plenty of time left until the FOMC’s September 21 meeting.
Next up: UoM Consumer Sentiment (Friday)
Now that we know July was a strong month for employment, but not so strong for inflation, investors will look for signs on how the American consumer’s outlook is shaping on the economy and inflation prospects. Friday’s release of the University of Michigan’s closely-followed Consumer Sentiment and Inflation Expectations surveys will be in sharp focus. Thanks to soaring prices of everything from gas to food, consumer sentiment in the US has been dropping rapidly in recent months, mirroring the situation in Europe and the rest of the world. However, the US economy has weathered the inflation storm better than other regions, which is why the dollar has until recently been so strong. But is the momentum changing? If we see signs of a struggling US consumer, then this could hurt the dollar further.
EUR/USD finally breaks out
For those who follow my analysis articles closely, you already know that I have been quite vocal about the prospects of a EUR/USD recovery to at least 1.0350 and generally a dollar sell-off in recent weeks. Well, today the EUR/USD has hit that level and went about 15 more pips higher, before retreating somewhat. This 1.0350 level was previously a key support zone and it is now offering some resistance. However, given how long we had price coiling in a tight range prior to today’s rally, there is now a good chance the EUR/USD will continue higher. I reckon that 1.0500 is now not too an unrealistic target. However, as before, I am not very confident in anticipating a major recovery given the troubles that Europe faces with regards to its energy needs.
How to trade with City Index
You can trade with City Index by following these four easy steps:
- Open an account, or log in if you’re already a customer
• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
- Search for the company you want to trade in our award-winning platform
- Choose your position and size, and your stop and limit levels
- Place the trade
Related tags:
Latest market news
The complete CFD trading experience
Award-winning platforms, competitive spreads, low commissions and dedicated support.
We live and breathe the markets and are dedicated to helping traders realise their ambitions as we continue to set the industry bar.
Economic calendar
Web Trader platform
Our sophisticated web-based platform is packed with features.
Related articles
EUR/USD, USD/JPY Outlook: Oil, yields and an FX identity crisis
Crude oil is setting the tone across rates and FX, leaving EUR/USD vulnerable and USD/JPY caught between higher Treasury yields and the growing threat of intervention
AUD/USD Analysis: What's Next for the Australian Dollar After the RBA Decision?
Recent trading sessions have reflected a more neutral tone around the Australian dollar. This can be seen in AUD/USD price action, which has posted moves of roughly 0.2% over the last two sessions without establishing a clear direction. Much of this lack of momentum is linked to expectations surrounding the next policy moves from both the Reserve Bank of Australia (RBA) and the Federal Reserve.
Gold forecast: Rising yields become too hot for gold, but the outlook is far from bearish
Gold and silver prices took a plunge today, with the former down 3% and the latter falling some 5% by mid European session, before bouncing off their lows. The losses come after the metals remained largely supported until last week, despite the big dollar rally and surging bond yields as we have seen in recent weeks. But it simply got too much, and the metals succumbed to pressure today.
StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation.
StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.