US CPI Overview

Thursday's US economic docket highlights the release of the critical US consumer inflation figures for December, scheduled later during the early North American session at 13:30 GMT. On a monthly basis, the headline CPI is anticipated to remain flat during the reported month as compared to a modest 0.4% rise in November. The yearly rate, meanwhile, is expected to decelerate sharply to 6.5% in December from the 7.1% previous. Furthermore, core inflation, which excludes food and energy prices, is projected to edge up by 0.3% in December and fall to 5.7% on yearly basis from 6.0% in November.

Analysts at RBC Economics offer a brief preview of the crucial macro data and write: “We expect YoY US consumer price growth to slow significantly in December to 6.3% from 7.1% in November. The steep decline in headline price growth is largely thanks to a significant drop in energy prices. We expect ‘core’ (excluding food & energy products) price growth to slow to 5.6% YoY in December from 6.0% in October. Further signs of declining price growth would support further slowing in the pace of hikes from the Fed. We continue to expect 50 bps of additional hikes to the Fed funds target range in Q1 before a pause at a terminal rate of 4.75% to 5.0%.”

How Could it Affect EUR/USD?

Ahead of the key release, growing acceptance that the Fed will soften its hawkish stance and slow the pace of its policy tightening keep the US Dollar depressed near a multi-month low. A softer-than-expected US CPI print will reinforce market expectations and prompt fresh selling around the buck. This, in turn, will allow the EUR/USD pair to capitalize on its recent strong bullish momentum.

That said, surprisingly stronger US consumer inflation figures will lift bets for a more hawkish Fed and push the US Treasury bond yields higher, along with the US Dollar. The immediate market reaction, however, is likely to remain limited amid the recent hawkish rhetoric from several ECB policymakers, which might continue to underpin the Euro and lend support to the EUR/USD pair. 

Eren Sengezer offers a brief technical outlook for the EUR/USD pair and outlines important technical levels: “Following this week's action so far, static resistance seems to have formed at 1.0770. Above that level, 1.0800 (psychological level, static level) and 1.0840 (static level) could be seen as next bullish targets.”

“On the downside, 1.0730 (static level, 20-period Simple Moving Average (SMA)) aligns as initial support before 1.0700 (psychological level, static level) and 1.0650 (50-period SMA, 100-period SMA), ” Eren adds further.

Key Notes

  •   US CPI Preview: Forecasts from 10 major banks, price pressures to ease further

  •   US December CPI Preview: EUR/USD and USD/JPY are pairs to watch

  •   EUR/USD Forecast: Euro to target new multi-month highs on soft 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).