**U.S. Dollar Breakout Post-CPI: EUR/USD, USD/JPY, GBP/USD, USD/CAD**
*Based on the analysis by Matt Weller, CFA, CMT, Forex.com*
The U.S. dollar has staged a robust breakout following the latest Consumer Price Index (CPI) report, which showed inflation ticking higher than anticipated. This development has caused significant ripples across the major currency pairs — EUR/USD, USD/JPY, GBP/USD, and USD/CAD. The moves are crucial for traders to monitor, as the implications from the evolving economic landscape in the United States extend to global exchange rates, policy outlooks, and risk positioning.
**Post-CPI: The Driving Force Behind the Dollar’s Strength**
The latest U.S. CPI release surprised markets by revealing stronger-than-expected inflationary pressures. This data bolstered the U.S. dollar, as it prompted traders to reevaluate their expectations for future monetary policy moves by the Federal Reserve. In particular:
– Headline inflation came in above economists’ estimates, highlighting persistent price pressures.
– Markets responded by pricing in a reduced likelihood of imminent rate cuts by the Fed.
– U.S. Treasury yields surged as investors anticipated higher yields for a more extended period.
The result was an aggressive rally in the greenback, leading to pronounced moves in key dollar pairs.
**EUR/USD: Downside Interrupted as Dollar Surges**
EUR/USD came under immediate pressure as the dollar surged in the wake of the inflation report. The move overturned the pair’s recent recovery attempt and pointed to a strong bearish technical outlook.
*Key Technical Observations:*
– EUR/USD had been consolidating in a broad range but failed to hold above the 1.0850/1.0900 area after the CPI announcement.
– The sell-off accelerated through critical support near 1.0800, fueling a sharp downward move.
– Momentum indicators such as the RSI turned lower, confirming a more bearish outlook in the near term.
*Key Levels to Watch:*
– **Resistance:** 1.0850 (near-term recovery cap), followed by 1.0900 (psychological threshold)
– **Support:** 1.0750 (recent low), with further downside risk towards 1.0700 and the March lows near 1.0700
*Potential Scenarios:*
– Should EUR/USD sustain below 1.0800, bears are likely to target a move toward 1.0700.
– A break back above 1.0850 would suggest stabilization and a potential return to range-bound trading, but that scenario has diminished given the current macro backdrop.
**USD/JPY: Fresh Highs as Yield Differential Widens**
The USD/JPY pair was another notable beneficiary of the CPI-driven greenback surge. The fundamental story for this pair has been underpinned by the differential in central bank policy paths.
*Key Drivers:*
– The Federal Reserve’s more hawkish stance on the back of higher inflation data juxtaposed sharply with the Bank of Japan’s extremely accommodative policy.
– Rising U.S. yields contrasted with tepid Japanese bond performance supported further yen weakness.
*Technical Picture:*
– USD/JPY raced through resistance in the 153.00-153.50 area, marking new multi-decade highs.
– The RSI signaled overbought territory, but there was little evidence of a sustained reversal in the short term.
– Every modest pullback has been met with renewed buying interest, indicating strong underlying bullish momentum.
*Levels in Focus:*
– **Resistance:** 154.00 (psychological number), with some scope toward 155.00 should the trend persist.
– **Support:** 153.00 (prior resistance turned support), followed by 152.00 in the case of a corrective pullback.
*Trading Implications:*
– With policy divergence intact, the path of least resistance appears higher. However, traders need to monitor for
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