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Euro In Holding Pattern Ahead Of U.S. CPI

Euro In Holding Pattern Ahead Of U.S. CPI

The euro is unchanged in the Thursday session. In North American trade, EUR/USD is trading at 1.2177, down 0.02% on the day.

Will US CPI shake up the currency markets?

In the US, the markets are eagerly anticipating the CPI report for May (12:30 GMT). In April, inflation shocked the markets with a surge of 0.8% (MoM). The US dollar responded with strong gains, although it did not take long for the greenback to give up these gains.

The Federal Reserve was unperturbed by the high CPI figure and has stuck to its script that the rise in inflation is transient and will not have any bearing on the Fed’s ultra-accommodative stance. The Fed has insisted that it has no plans to taper QE, but the markets aren’t completely convinced, as concerns about higher inflation continue to linger. This makes the upcoming CPI reading all the more dramatic.

The consensus for May CPI stands at a 0.4% gain, so a print of 0.50% or less should allow the markets to return to business as usual. However, a stronger gain could raise speculation about a tightening of policy and lift the US dollar, much as we saw after the April CPI release.

Markets eye ECB

Once the US CPI reading is behind us, the markets will shift their attention to Europe, with the ECB holding a policy meeting on Thursday. ECB President Christine Lagarde recently said that that it was too early to consider tapering the massive stimulus program. Still, with economic conditions gradually improving in the eurozone, the markets will be looking for the ECB to reinforce the message that it plans to stick to its dovish policy.

EUR/USD Technical

EUR/USD Daily Chart

  • On the upside, 1.2245 has held in resistance since June 1. Above, there is resistance at 1.2325
  • There is support at 1.2095, followed by 1.2025

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