Open account
☰
Open account
✖

EUR/USD analysis: US CPI provides dollar fresh impetus – for now

Article By: ,  Market Analyst
October 12, 2023 4:00 PM
  • EUR/USD analysis: CPI hotter, but not a game-changer
  • US CPI steady at 3.7% y/y, a touch stronger than expected
  • EUR/USD technical analysis: May’s low at 1.0635 remains most important short-term level

 

The EUR/USD shed more than 85 pips from the day’s high as the selling accelerated when US CPI data was released. But at the time of writing, it was testing potential support around 1.0550 area. While the slightly stronger US CPI data has given fresh life to the dollar’s bullish trend, inflation was not too hot to be a game-changer. So, watch out for potential post-CPI weakness to creep back into the US dollar, which could help provide support for currency pairs like the EUR/USD.

 

EUR/USD analysis: CPI hotter, but not a game-changer

 

Today’s US economic data didn’t disappoint the dollar bulls, as the greenback rallied across the board. However, they may still get disappointed by the dollar once the dust settles.

 

Ahead of the US CPI today, we had seen the dollar weaken, while government bonds, gold and equity indices had all gained ground. But once the data came out, all these markets fell and the dollar jumped across the board, along with bond yields.

 

In my opinion, the CPI data is not going to be a game changer, insofar as the Fed is concerned. If you look past the headlines, inflation was not too alarming in September. Annual Core CPI was in line at 4.1% y/y or 0.3% month-over-month. What’s more, if you exclude shelter, this measure of inflation rose just by 0.1% month-on-month, which isn’t nearly as frightening as the headline 0.3% rise.

 

So, I doubt today’s CPI will move the needle in as far as November is concerned, meaning the Fed is likely to remain on pause. In fact, inflation could decline more rapidly in the months ahead as the impact of weaker economic growth and the Fed’s past rate hikes filters through.

 

The trouble for foreign currencies is that decline in economic activity have been more severe in economic regions like the Eurozone and UK, than the US. This is why the dollar has remained fairly resilient, with investors reluctant to buy the euro or the pound, or the Aussie for that matter. But that could change, so be on the watch out for a potential bounce in major currency pairs like the EUR/USD and AUD/USD.

 

 

US data recap

 

  • CPI 0.4% M/M, EXP. 0.3%; 3.7% Y/Y, EXP. 3.6%,
  • CPI CORE 0.3% M/M, EXP. 0.3%; 4.1% Y/Y, EXP. 4.1%
  • JOBLESS CLAIMS RISE 209K, EXP. 210K

 

 

EUR/USD technical analysis

Source: TradingView.com

 

As we had highlighted previously, the EUR/USD needed to back above 1.0635 (i.e., the low it had hit in May, before breaking it in September) to tip the balance in the bulls’ favour. We needed to see some confirmation that the recent recovery had some conviction behind it. On the evidence of today’s price action, well there was no commitment from the bulls. The EUR/USD merely rose a few pips above that 1.0635 level, before plunging to 1.0550, where it was trading at the time of writing. This means that the prior support has indeed turned into resistance, with the bearish trend line, which also happens to converge around that 1.0635 level, remaining in place for now.

The EUR/USD therefore remains inside its larger bearish trend. The bulls will now need to see a new solid bullish signal to tip the balance back in their favour. For me, a closing break above that 1.0635/40 level would be the confirmation. Let’s see if the EUR/USD will manage to hold its own around 1.0550 support and recover again as we head deeper into the US session. Wednesday’s low at 1.0581 is now the first trouble area on the upside.

 

EUR/USD analysis video from earlier in the week

In case you missed it, in the video, below we had highlighted the importance of the abovementioned levels. The EUR/USD is now back below last week's high at 1.06. The bulls need to reclaim this level if they want to arrest the bearish trend:

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

 

How to trade with City Index

You can trade with City Index by following these four easy steps:

  1. 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

  2. Search for the company you want to trade in our award-winning platform 
  3. Choose your position and size, and your stop and limit levels 
  4. Place the trade

 

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

© City Index 2024