EUR / USD at risk of falling below 1.17, focus on US CPI.

Key discussion points:

  • EUR / USD tests 1.17 for the second time this year
  • US CPI could be a market driver as analysts expect the July reading to be a bit softer

EUR / USD is just above the 2021 low as the US dollar starts the day slightly higher. So far the move has been quite light compared to previous sessions, but this afternoon we have US CPI data and this could be a market driver if the reading deviates from market expectations.

Expectations are for the July CPI to soften slightly, from 5.4% to 5.3%, and underlying prices to 4.3%. That said, if last month’s PPI reading is anything to go through, we may be expecting another small rally that would see US yields and the US dollar higher. If so, the EUR / USD could fall below 1.17, which would be the lowest price since 4ns for November 2020. This could also trigger some stops that would put further downward pressure on the pair, meaning that We could see a bigger pullback, if only momentary, as I expect the price to stabilize over the next few days.

If so, it would seek support around 1.1603, which is the November 2020 low after the pair already bounced off 1.17 before pulling back further. On the upside, 1.1780 is likely to show some resistance as the pair has consolidated in that area in recent weeks.

EUR / USD daily chart

Basically, the US dollar is ending Delta Variation fears in favor of focusing on the Fed’s downsizing expectations, but in Europe it’s a different picture, with the ECB remaining in the ultra-column, rejecting expectations of rate hikes. until 2024 and economic data suggest that growth may have already peaked.

As for the Fed, the stronger CPI reading will add pressure to an upcoming reduction expected to be announced later this month at the Jackson Hole Symposium, which would mark the anniversary of the announcement of the average inflation target. I hope legislators continue to label the mounting price pressures as transitory, but there are some unsurts of the CPI reading that may turn out to be firmer than expected, particularly house prices, as we have seen evidence of a tight housing market. and in warm-up.

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– Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on @HathornSabin

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