Title: U.S. Dollar Rallies Ahead of CPI Report: In-Depth Analysis of EUR/USD, GBP/USD, USD/CAD, and USD/JPY
By: Vladimir Zernov (original author), expanded and restructured for detail and clarity
The U.S. dollar continues to gain strength in anticipation of the upcoming Consumer Price Index (CPI) report, which is expected to offer further clarity on the path of inflation and, by extension, the Federal Reserve’s monetary policy. Market participants are closely watching this data point, as it may influence expectations regarding interest rate changes and broader macroeconomic trends.
In early trading ahead of the CPI release, the U.S. Dollar Index (DXY), which measures the greenback against a basket of major currencies, moved higher, signaling broad-based dollar strength driven by investor caution and positioning. Below is a detailed technical and fundamental analysis of the major forex pairs, including EUR/USD, GBP/USD, USD/CAD, and USD/JPY.
U.S. Dollar Outlook
Recent economic indicators suggest a possible moderation in economic activity, but inflation remains a key concern. While last week’s jobs report came in below forecasts, with May’s Non-Farm Payroll (NFP) addition at 272,000 but the unemployment rate ticking up to 4.0 percent, the market has not substantially shifted expectations for the Federal Reserve’s next move.
Analysts expected CPI to have risen 0.1 percent month-over-month in May, with core CPI (excluding food and energy) up 0.3 percent. A higher-than-expected reading could cement views that the Fed may keep rates elevated for longer, thus supporting the dollar.
Key Factors Supporting the Dollar:
– Inflation persistence: Despite aggressive rate hikes since 2022, core inflation remains sticky.
– Hawkish Fed stance: Fed officials, including Chair Jerome Powell, have reiterated that they need to see clear evidence of inflation sustainably heading toward the 2 percent target.
– Global uncertainty: Geopolitical tensions and economic divergence between the U.S. and other economies are encouraging risk aversion and capital flows into the dollar as a safe haven.
EUR/USD Technical and Fundamental Analysis
The EUR/USD pair has come under pressure due to the strengthening U.S. dollar and mixed economic signals from the Eurozone. At the time of reporting, EUR/USD is trading near the 1.0750 level.
Key Factors Impacting EUR/USD:
– Weak eurozone fundamentals: Recent data showed stagnation in industrial production and a continued struggle for economic recovery, particularly in Germany and France.
– ECB policy divergence: While the European Central Bank did implement a rate cut earlier this month—the first among major central banks—the Federal Reserve remains firm on holding interest rates, creating a yield differential in the dollar’s favor.
– Political uncertainty: European Parliamentary elections are increasing short-term volatility in the euro due to the rise of right-wing parties and populist rhetoric.
Technical Analysis for EUR/USD:
– Resistance near the 1.0800-1.0830 zone: This level has proved difficult to break in recent sessions due to renewed bullish sentiment in the dollar.
– Support lies around the 1.0700 level: A break below this support could open the door to the 1.0660 and possibly 1.0600 levels.
– Momentum indicators such as the Relative Strength Index (RSI) suggest a neutral to slightly bearish bias.
Traders should look out for CPI data and the Federal Reserve’s Summary of Economic Projections, which will influence the pair significantly in the near term.
GBP/USD Analysis
GBP/USD has also been retreating from recent highs as the U.S. dollar appreciates. The pair trades near 1.2740, retracing from levels seen earlier this month when the Bank of England (BoE) adopted a slightly hawkish tone compared to market expectations.
Key Factors Supporting Price Movements:
– U.K. inflation progress: The BoE has made considerable progress in
Read more on USD/CAD trading.