US CPI: What to expect of EUR/USD

The pair is alternating gains with losses on Tuesday, fading the initial spike to the area of 1.1340 following a softer tone in the greenback early in the European session. Ahead in the NA session, the USD will take centre stage as US inflation figures and other key indicators are due.

Furthermore, a continuation of the recent rally in the greenback seems likely as market participants expect consumer prices tracked by the CPI to have inched higher during April: 0.3% on a monthly basis and 1.1% over the last twelve months. Core prices are seen following suit, up 0.2% inter-month and 2.1% on an annualized basis.

In words of strategists at TD Securities, “Higher gasoline prices are expected to push headline CPI up a further 0.3% m/m (up 0.262% m/m at 3 decimal places). This will mark the fastest monthly pace of headline price gains since May last year, bringing to an end a prolonged period of subdued headline inflation performance”.

Regarding EUR/USD, a positive surprise would surely be USD-supportive, adding to the recent up move from lows in the 91.90 tracked by the US Dollar Index (DXY) and thus prompting spot to resume the leg lower, with initial target at last week’s multi-month lows in the 1.1280 area.