Title: EUR/USD and DXY Hover Near Key Levels Ahead of U.S. CPI Report
Author: Matt Weller, CFA, CMT – Forex.com
Original Article: “EUR/USD and DXY consolidate near key levels ahead of CPI report”
Source: Forex.com
URL: https://www.forex.com/en-us/news-and-analysis/eurusd-and-dxy-consolidate-near-key-levels-ahead-of-cpi-report/
As the markets prepare for the release of the closely watched U.S. Consumer Price Index (CPI) report, the EUR/USD currency pair and the U.S. Dollar Index (DXY) are consolidating near crucial technical levels. Despite fluctuations across different asset classes, traders appear to be in a holding pattern, driven by the anticipation of potential shifts in monetary policy guidance from the Federal Reserve.
This article breaks down the current technical and fundamental landscape for the EUR/USD and DXY, explains why the upcoming CPI report is significant, and highlights key market behaviors and levels to monitor.
Overview of Market Sentiment
In the lead-up to the April U.S. inflation data, financial markets have shown a mixed performance. While major stock indices continue to climb, helped by anticipated resilience in corporate earnings and economic data, bond yields and the U.S. dollar are displaying more restrained behavior. Currency and fixed income traders are waiting for more definitive signs about the direction of inflation and, by extension, monetary policy.
Two key instruments are under particular scrutiny:
– EUR/USD, representing the world’s most traded currency pair and a strong indicator of global macroeconomic sentiment.
– DXY (U.S. Dollar Index), which measures the value of the U.S. dollar against a basket of six other major currencies.
Both of these instruments are approaching important support and resistance levels that could dictate short-term direction following the CPI release.
Market Expectations Ahead of April CPI
The upcoming inflation report is scheduled to be released on Wednesday, May 15, 2024, at 8:30 AM Eastern Time. Market participants are eyeing the figures carefully because recent inflation readings have remained more persistent than the Federal Reserve had hoped.
Key forecasted figures:
– Headline CPI (YOY): Expected at 3.4%, slightly down from the previous 3.5%.
– Core CPI (YOY): Expected to stay unchanged at 3.8%.
– Headline CPI (MOM): Expected at 0.4%.
– Core CPI (MOM): Also forecasted at 0.3%.
A higher-than-expected reading would suggest that inflation remains sticky, reinforcing the Fed’s cautious stance on rate cuts this year. Conversely, softer data could increase market hopes for interest rate easing later in 2024.
Right now, futures traders forecast just one rate cut in 2024, a significant shift from earlier in the year when as many as six were priced in. Thus, the CPI release has the potential to either affirm or drastically alter current interest rate expectations.
EUR/USD Technical Outlook
The euro has been floating near a key psychological level of 1.0800, showing signs of indecision as traders await the inflation data.
Key technical highlights for EUR/USD:
– Support level: 1.0750 – This zone acted as resistance in mid-April and has turned into a key support.
– Resistance level: 1.0880 – The previous month’s high, which marks a ceiling for bulls.
– 200-day Simple Moving Average (SMA): Close to current prices around 1.0800, suggesting a potential pivot point.
– RSI Indicator: Near 50, implying neither overbought nor oversold conditions.
What to watch for:
– A break below 1.0750 would signal renewed USD strength, potentially pushing the pair toward the 1.0600 region.
– Movement above 1.0880 would confirm bullish sentiment, opening the path toward 1.1000 in the short
Read more on EUR/USD trading.