When is the US consumer inflation (CPI report) and how could it affect EUR/USD?

US CPI Overview

Friday's US economic docket highlights the release of the critical US consumer inflation figures for May, scheduled later during the early North American session at 12:30 GMT. The headline CPI is anticipated to rise by 0.7% during the reported month, up sharply from the 0.3% in April. The yearly rate, however, is expected to hold steady at 8.3% in May. Meanwhile, core inflation, which excludes food and energy prices, is projected to rise 0.5% MoM and come in at a 5.9% YoY as compared to 0.6% and 6.2%, respectively, in April.

Analysts at Nordea offered a brief preview of the report and explained: “Headline inflation is likely to stay flat printing at 8.3% YoY, while core inflation will fall towards 6.1% YoY with a slight risk to the downside. The primary driver of headline inflation will be energy prices, which are poised to show a large contribution to YoY headline CPI on the back of a 9% gasoline price increase in May. Another contributing factor will be service inflation, which has accelerated on a month-on-month basis and will start contributing more and more to the YoY numbers. Today’s inflation problem began as a surge in goods prices during the pandemic, but it has now turned into sticky and broad-based service inflation, which really highlights the Fed’s delay in withdrawing accommodative policy.”

How Could it Affect EUR/USD?

Ahead of the key release, the US dollar continued drawing support from the recent run-up in the US Treasury bond yields and was further underpinned by a generally weaker risk tone. Stronger-than-expected US CPI print would reaffirm market bets that the Fed would need to tighten its monetary policy at a faster pace to curb soaring inflation. This, in turn, would push the US bond yields higher, along with the greenback. Conversely, the reaction to a softer reading is more likely to remain muted amid concerns about the worsening global economic outlook, which should continue to act as a tailwind for the safe-haven buck. This, in turn, suggests that the path of least resistance for the EUR/USD pair is to the downside.

Eren Sengezer, Editor at FXStreet, outlined important technical levels to trade the EUR/USD pair: “The 200-period SMA on the four-hour chart forms dynamic support at 1.0600. In case the pair falls below that level and starts using it as resistance, it could target 1.0570 (Fibonacci 50% retracement of the latest uptrend) and 1.0520 (Fibonacci 61.8% retracement) next.”

“On the upside, 1.0650 (static level) aligns as first resistance ahead of 1.0680 (Fibonacci 23.6% retracement) and 1.0700 (psychological level, 100-period SMA). Meanwhile, the Relative Strength Index (RSI) indicator on the four-hour chart stays near 40, suggesting that there is more room on the downside before the pair turns technically oversold,” Eren added further.

Key Notes

  •   US Consumer Price Index May Preview: Fed policy is set but there is room for surprise

  •   US CPI Preview: Soft core set to drive dollar down, and two other scenarios

  •   EUR/USD Forecast: Sellers could attack 1.0600 on hot US inflation data

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 the 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).