**U.S. Dollar Breakout Following CPI Report: Analysis on EUR/USD, USD/JPY, GBP/USD, and USD/CAD**
*Original article by Matt Weller, CFA, CMT | Sourced from Forex.com*
The U.S. Dollar saw a robust surge this week following the release of stronger-than-expected Consumer Price Index (CPI) data, causing volatility across major currency pairs including EUR/USD, USD/JPY, GBP/USD, and USD/CAD. The report has reignited concerns over potential shifts in Federal Reserve policy, as inflation shows persistent signs of life, potentially delaying any rate cuts previously anticipated by market participants.
Here’s an in-depth breakdown of the dollar’s breakout, its implications on major currency pairs, and broader economic context that adds more clarity to the market’s reaction.
## U.S. Inflation Report Review
Headline CPI data released by the U.S. Bureau of Labor Statistics showed that consumer prices rose more than economists had forecasted. Both core and headline inflation figures were notably higher, pushing Treasury yields up and causing a spike in the U.S. Dollar Index (DXY).
– **CPI (YoY)**: Rose to 3.5% in March from 3.2% previously (forecast: 3.4%)
– **Core CPI (YoY)**: Held steady at 3.8% vs. expectations for a decrease to 3.7%
– **CPI (MoM)**: Increased by 0.4%, higher than the forecast of 0.3%
The persistent inflationary pressure has thrown market assumptions about a mid-2024 rate cut into question. Futures markets, as tracked by CME FedWatch, are now reflecting increased odds that the Fed may delay rate cuts or even consider another hike if inflation remains sticky.
## U.S. Dollar Index (DXY): Bullish Breakout
The U.S. Dollar Index broke decisively above the 105.00 resistance level, indicating bullish strength driven largely by shifting expectations of Federal Reserve monetary policy. The weekly close above trend resistance suggests that the dollar bull run might continue.
– **Technical Breakout**: The DXY surpassed the previous multi-month resistance of 105.00
– **Support Levels**: Now sitting above previous resistance, forming a new support zone around 105.00 to 104.50
– **RSI Indicator**: Signaling overbought conditions, but strong macro fundamentals may override short-term correction signals
A powerful U.S. labor market, coupled with elevated inflation, gives the Fed room to remain hawkish. Fed officials including Jerome Powell have maintained a data-dependent stance, but persistently hot CPI and strong job numbers support the case for tighter monetary conditions.
## EUR/USD: Sliding Toward Key Support
The euro came under pressure as the dollar surged, breaking key technical levels and testing support. Recent dovish comments from European Central Bank (ECB) officials accentuated the weakness.
– **EUR/USD fell below 1.0800**, a key psychological and technical support level
– ECB policymakers, including Christine Lagarde, have signaled the likelihood of a rate cut in June as eurozone inflation moderates
– **Technical Support at 1.0725**: This area corresponds with February lows and a prior resistance zone
– Failure to hold this level could open the door toward **1.0650 and 1.0600**
While eurozone inflation trends lower, economic growth remains stagnated, adding to the pressure on the euro. With the ECB leaning more dovish and the Fed potentially maintaining higher rates for longer, the EUR/USD path seems tilted to the downside.
## USD/JPY: Climbing Amid Intervention Risks
The Japanese yen continues losing ground as the Bank of Japan (BoJ) remains dovish despite rising interest rate differentials. Following the U.S. CPI report, USD/JPY surged above 153.00, raising intervention concerns from Japanese authorities
Read more on USD/CAD trading.