How to Trade the US CPI Release

Key Talking Points:

  • EUR/USD attempts to turn higher after its recent pullback
  • US CPI in focus ahead of the Fed’s September meeting

The Euro has given away some of its gains against the US Dollar after breaking out of a descending channel at the end of August and is now just hovering above the 1.18 mark. Despite the pullback, EUR/USD remains stuck in a range between its moving averages, with the shorter-dated 20- and 50-day SMAs offering support around 1.1800/15 and the longer-dated 50- and 100-day SMAs showing some resistance above 1.19.

The RSI is slightly uninspiring at the moment as it is stuck in the middle of the 30/70 range which shows a lack of direction in the short term. If anything, the line has tilted up ever so slightly in the last few sessions and so we may see this morning’s attempted breakout follow-through throughout the week. To be honest the 1.1900 are looks pretty daunting as of now, especially as the pair has been unable to gain traction above it since June. That said, the wider trend is not threatening to turn bearish as long as EUR/USD stays above 1.1738, with yesterday’s low of 1.1770 likely to offer some short-term support.

EUR/USD Daily chart

EUR/USD Setup: How to Trade the US CPI Release


Later today the US CPI for August will be released, something Dollar traders will be keeping an eye out for. The Fed is unlikely to announce imminent tapering of its asset at its meeting next week despite today’s reading as the latest NFP data disappointed, but the CPI figures will shape the commentary from Fed members in the following weeks. The data is expected to edge of the recent highs for the second month in a row, with a reading within estimates likely to cause some choppy directionless trading, with the US Dollar likely drifting higher afterwards, which may see EUR/USD move towards its support at 1.1770.

A softer reading, which would play in favour of the transitory rhetoric, would allow the Fed more breathing room to refrain from talking about tapering at its upcoming meeting, which would likely see the US Dollar reverse some of its recent gains, with EUR/USD possibly pushing towards 1.1870. On the flip side, a stronger CPI reading would likely raise the chance of tapering as inflation seems more persistent and would see some defensive positions taken on the Dollar, with a stronger bearish move for EUR/USD on the announcement.

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— Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin

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