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

US CPI Overview

Tuesday's US economic docket highlights the release of the critical US consumer inflation figures for November, scheduled later during the early North American session at 13:30 GMT. On a monthly basis, the headline CPI is anticipated to have risen by 0.3% during the reported month as compared to the 0.4% increase recorded in October. The yearly rate, however, is expected to decelerate to 7.3% in November from the 7.7% previous. Meanwhile, core inflation, which excludes food and energy prices, is projected to remain steady at 0.3% in November and decelerate to 6.1% on yearly basis from 6.3% in October.

Analysts at ANZ offer a brief preview of the key macro data and explain: “We expect US core CPI to rise by 0.4% MoM in November. Goods prices are trending in a disinflationary/deflationary manner, while CPI rent will remain elevated until mid-2023 and should trend lower thereafter. Key to the inflation outlook will be the prices of services excluding rent. As wages are the largest cost in providing these services, watching labour market trends will be important. Wages growth is above levels consistent with 2% inflation as demand for labour outstrips supply. As supply is slow to adjust, the Fed needs to limit demand. The Fed still has more work to do to achieve its price stability mandate.”

How Could it Affect EUR/USD?

A softer-than-expected reading will reinforce market expectations that the Fed will slow the pace of its policy tightening and prompt fresh selling around the US Dollar. This, in turn, should allow the EUR/USD pair to break out of a nearly two-week-old trading range and capitalize on its recent momentum beyond a technically significant 200-day SMA. Conversely, a surprisingly stronger US CPI print could lead to a reevaluation of the Fed's rate-hike path and trigger an aggressive USD short-covering move.

The immediate market reaction, however, is likely to remain limited as investors might prefer to wait for the highly-anticipated FOMC policy decision, scheduled to be announced on Wednesday. Nevertheless, any meaningful divergence from the expected readings should infuse some volatility in the markets and allow traders to grab short-term opportunities around the EUR/USD pair.

Eren Sengezer offers a brief technical outlook for the major and explains: “EUR/USD holds above the 20-period and the 50-period Simple Moving Averages on the four-hour chart. The Relative Strength Index (RSI) indicator on the same chart stays slightly above 50, pointing to a lack of seller interest.”

Eren also outlines important technical levels to trade the EUR/USD pair: “On the upside, 1.0580 (static level) aligns as interim resistance before 1.0600 (psychological level, static level) and 1.0630 (static level from June). Supports are located at 1.0520 (50-period SMA), 1.0500 (psychological level, static level) and 1.0450 (static level).”

Key Notes

  •   US Inflation Cheat Sheet: Five scenarios for Core CPI and the Dollar's explosive reaction

  •   US CPI Preview: Forecasts from 10 major banks, inflation appears to have peaked

  •   EUR/USD edges higher in a familiar range, hovers around mid-1.0500s as traders await US CPI

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).