**U.S. Dollar Surges Post-CPI Data: Analysis of USD Trends Versus EUR, JPY, GBP, and CAD**
*Adapted and expanded from an article by Matt Weller, FOREX.com*
The U.S. dollar surged after the release of the latest Consumer Price Index (CPI) data, sparking renewed investor confidence in the strength of the U.S. economy and shifting expectations around future Federal Reserve policy. This bullish momentum has had ripple effects across various major currency pairs, such as EUR/USD, USD/JPY, GBP/USD, and USD/CAD.
In this in-depth analysis, we will break down the causes behind the dollar’s breakout, examine how each major currency pair reacted, and consider potential implications for forex traders in the coming weeks.
### CPI Report Sparks Dollar Rally
On the release of the April U.S. CPI report, the dollar Index (DXY) sharply rallied past a key resistance level. Here’s what contributed to the movement:
– **Inflation Metrics Surprise Markets**: Year-over-year headline CPI came in at 3.4%, matching expectations, while core CPI (excluding food and energy) printed at 3.6%. Monthly readings registered a 0.3% increase for both metrics, slightly softer than past months.
– **Returning Confidence in Fed Outlook**: Slower-than-expected increases in consumer prices gave room for renewed optimism regarding the potential for interest rate stability rather than aggressive hikes.
– **10-Year Treasury Yields Drop**: Following CPI, the U.S. 10-year yield declined closer to 4.36%, easing off recent highs and further supporting the rally in risk-sensitive assets.
The DXY, a benchmark that tracks the performance of the dollar against a basket of six currencies, surged past the 105.00 level, marking a clean breakout from the prior consolidation range. Technical traders had been monitoring the zone between 104.00 and 105.00 for signs of direction, and CPI acted as the catalyst.
### Technical Analysis: DXY Breakout
– Prior to CPI, the DXY was stuck in a tight consolidation between 104.00 (support) and 105.00 (resistance).
– After the CPI release, the DXY jumped, closing decisively above 105.00, targeting 105.50 and, beyond that, the highs from April near 106.50.
– Momentum indicators such as RSI and MACD turned sharply bullish after several neutral months.
This breakout indicates a shift toward a more favorable sentiment on the dollar, especially as economic indicators reaffirm relatively stronger U.S. fundamentals compared to major peers.
Let’s look at how this breakout affected specific currency pairs:
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### EUR/USD: Dollar Strength Forces Pair Below Key Support
EUR/USD fell sharply through the 1.0800 level, a widely watched support zone, post-CPI. This drop reflected the widening divergence between U.S. and European economic momentum.
– **ECB vs Fed Divergence**: The European Central Bank (ECB) is increasingly signaling dovishness, with some policymakers hinting at rate cuts as soon as June due to declining growth and inflation trends in the Eurozone.
– **EUR/USD in Downtrend Channel**: The pair shows sustained lower highs and lows since peaking in early 2024.
– **Support Levels to Watch**: The next key support is seen at 1.0720, followed by 1.0650. A break below could open up a path toward 1.0500 longer term.
– **Resistance Near-Term**: If the pair retraces, 1.0800 now becomes immediate resistance, a former support level now acting as a ceiling.
Euro weakness seems likely to persist unless there is a material improvement in Eurozone metrics or a downtick in U.S. growth.
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### USD/JPY: Elevated Yields and Strong GDP Boost Yen Pair
USD/JPY rebounded strongly after a
Read more on USD/CAD trading.