US Inflation Data Not Likely to Change Outlook

The latest CPI data will be released from the United States later today, although there is good reason to believe the release is not likely to alter the outlook all that much for the United States.

As part of the Fed’s dual mandate to maintain price stability, inflation has always played a large part in monetary policy decisions. However, in today’s climate, investors are paying more attention to other risks such as the ongoing trade war.

Fears that a trade resolution won’t be reached anytime soon has pushed bond yields sharply lower and has the markets anticipating further rate cuts. Currently, the markets have fully priced in another rate cut at the September Fed meeting.

It’s not likely that a CPI beat will alter these probabilities all that much. On the side, it doesn’t take much for the markets to increase dovish bets on the US economy. From that perspective, the risk here seems to be greater if the inflation figure falls short of expectation. Such a scenario could boost expectations for more aggressive easing from the Federal Reserve.

Earlier today, CPI in Germany was reported in line with expectations. The release did not have much of an impact on the exchange rate.

Technical Analysis

EUR/USD has been range bound since early last week. The pair attempted a break lower yesterday but it was not sustained.

On a 4-hour chart, there is clear technical support and resistance in play that is containing the range. To the upside, there is a declining trendline that extends back to a high posted in late June. The 200 moving average is also within proximity of the trendline to create a confluence.

To the downside, the 50 and 100 moving averages have held any declines. It is very possible that the CPI release later today might try and break the pair out of the current range. However, I think it is important to confirm the break. Similar to yesterday, the exchange rate can easily fake a break once again to trap traders.

Bottom Line

• The range in EUR/USD continues and is well defined.
• CPI data later today might provide a catalyst for a break. The risk appears greater if the release falls short.