EUR/USD Forex Technical Analysis – Higher Headline, Core CPI Data Could Extend Sell-Off

The Euro is trading lower against the U.S. Dollar on Friday as traders await the release of the May U.S. Consumer Price Index report at 12:30 GMT. The inflation data should guide the Federal Reserve’s policy tightening path when it meets next week.

Meanwhile, sellers continue to pressure the single-currency after the European Central Bank (ECB) on Thursday said it would start its rate-hike campaign next month.

At 11:38 GMT, the EUR/USD is trading 1.0582, down 0.0036 or -0.34%. On Thursday, the Invesco CurrencyShares Euro Trust ETF (FXE) settled at $98.21, down $0.93 or -0.94%.

US Price Growth Could Cool Slightly

Some traders are looking for the U.S. Consumer Inflation Price Index (CPI) report to show that price growth cooled a fraction in May. If the number comes in as expected then this would provide some reassurance to those betting decades-high inflation had peaked in March and that the April pullback was not just a “one and done” event.

The Labor Department’s CPI, which tracks the cost to urban consumers of a basket of items, is expected to accelerate to 0.7% from 0.3%, when stripped of volatile food and energy products, it is seen cooling a nominal 0.1 percentage point to 0.5%.

Year on year, consensus has headline CPI holding steady at a blistering 8.3% and sees a “core” CPI print of 5.9%, which would mark a welcome 0.3 percentage point decline.

Robust CPI Reading Means More Aggressive Fed, Lower Euro

The market could probably handle a high CPI figure and a softer Core result, however, high numbers on both ends could mean the Fed will continue to raise rates more aggressively. This would put pressure on the Euro because the ECB is expected to hike at a much slower pace.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 1.0774 will change the main trend to up. A move through 1.0787 will reaffirm the trend.

The main range is 1.1185 to 1.0354. Its retracement zone at 1.0770 to 1.0868 is the resistance zone that stopped the rally at 1.0787 on May 30.

The short-term range is 1.0354 to 1.0787. Its retracement zone at 1.0571 to 1.0519 is the primary downside target.

Short-Term Outlook

Trader reaction to 1.0571 to 1.0519 is likely to be determine the short-term direction of the EUR/USD.

Since the main trend is up, buyers could come in on a test of 1.0571 to 1.0519. They are going to try to form a potentially bullish secondary higher bottom.

Sellers are going to try to drive the EUR/USD through the Fibonacci level at 1.0519. This could trigger the start of a steep break into the main bottom at 1.0354.