EUR/USD: Navigating Market Volatility Post-US CPI Release

EUR/USD: Navigating Market Volatility Post-US CPI Release

After experiencing a notable Pump and Dump scenario on Thursday following the US Consumer Price Index (CPI) release, the EUR/USD has managed to reposition itself for growth. The US Dollar (USD) faces challenges in finding demand, and as of the current moment, the price is trading at 1.09585.

Market Volatility and Inflation Figures:

Thursday's market witnessed heightened volatility as mixed inflation figures from the US took center stage. The US Bureau of Labor Statistics (BLS) reported a 3.4% year-on-year increase in the Consumer Price Index (CPI) for December. This followed the 3.1% surge in November and surpassed market expectations of 3.2%. The Core CPI, excluding volatile food and energy prices, rose 0.3% on a monthly basis, aligning with analysts' estimates.

Surprisingly, these inflation figures did not significantly alter market expectations regarding the Federal Reserve (Fed) policy outlook. The CME FedWatch Tool indicates a consistent probability of around 70% for a 25 basis points rate reduction in March.

Producer Price Index (PPI) Outlook:

Looking ahead, the Producer Price Index (PPI) is anticipated to rise by 1.3% in December on a yearly basis, up from the 0.9% recorded in November. A smaller-than-forecast increase may challenge the USD's stability leading into the weekend. However, a print at or above 1.5% could revive concerns over stronger producer inflation, potentially impacting the Fed's ability to control consumer inflation and influencing the EUR/USD.

Forecast for EUR/USD:

Our forecast for the EUR/USD remains bullish. The price is well-supported by the 200 Moving Average and the dynamic trendline of the bullish channel. Additionally, the Stochastic indicator is outside the oversold area, providing further evidence in favor of a potential bullish impulse.


Our preference

Long positions above 1.0770 with targets at 1.1140 & 1.1200 in extension.