US CPI Preview: Inflation to confirm Fed rate cut prospects

• 
  The
  US
  Consumer
  Price
  Index
  is
  forecast
  to
  rise
  3.1%
  YoY
  in
  June,
  at
  a
  softer
  pace
  than
  May’s
  3.3%
  increase.
• 
  Annual
  core
  CPI
  inflation
  is
  expected
  to
  hold
  steady
  at
  3.4%.
• 
  The
  inflation
  data
  could
  confirm
  or
  deny
  a
  Fed
  rate
  cut
  in
  September
  and
  drive
  the
  US
  Dollar
  valuation.

The
Bureau
of
Labor
Statistics
(BLS)
will
publish
the
highly
anticipated
Consumer
Price
Index
(CPI)
inflation
data
from
the

United
States
(US)
for
June
on
Thursday
at
12:30
GMT.

The
US
Dollar
(USD)
braces
for
intense
volatility,
as
any
surprises
from
the
US
inflation
report
could
significantly
impact
the
market’s
pricing
of
the
Federal
Reserve
(Fed)
interest
rate
cut
expectations
in
September.

What
to
expect
in
the
next
CPI
data
report?

Inflation
in
the
US,
as
measured
by
the

CPI,
is
expected
to
increase
at
an
annual
rate
of
3.1%
in
June,
down
from
the
3.3%
rise
reported
in
May.
The
core
CPI
inflation,
which
excludes
volatile
food
and
energy
prices,
is
seen
holding
steady
at
3.4%
in
the
same
period.

Meanwhile,
the
US
CPI
is
set
to
rise
0.1%
MoM
in
June
after
staying
unchanged
in
May.
Finally,
the
monthly
core
CPI
inflation
is
forecast
to
rise
0.2%
to
match
the
previous
increase.

Federal
Reserve
(Fed)

Chairman
Jerome
Powell
delivered
the
Semi-Annual
Monetary
Policy
Report
and
testified
before
US
Congress
earlier
in
the
week.
In
his
prepared
remarks,
Powell
reiterated
that
it
will
not
be
appropriate
to
cut
the
policy
rate
until
they
gain
greater
confidence
in
inflation
heading
sustainably
toward
2%.
When
asked
about
the
latest
developments
in
the
jobs
market,
“the
most
recent
labor
market
data
sent
a
pretty
clear
signal
that
the
labor
market
has
cooled
considerably,”
he
noted.
In
the
end,
his
remarks
failed
to
move
the
needle
with
respect
to
market
pricing
of
a
Fed
rate
cut
in
September.
According
to
the
CME
FedWatch
Tool,
the
probability
of
the
Fed
leaving
the
policy
rate
unchanged
in
September
stands
at
around
26%,
virtually
unchanged
from
where
it
stood
before
this
event.

Previewing
the
June
inflation
data,
“we
expect
the
June
CPI
report
to
show
that
core
prices
remained
largely
under
control
after
posting
a
surprisingly
soft
0.16%
gain
in
May,”
said
TD
Securities
analysts
in
a
weekly
report.

“Headline
inflation
likely
printed
flat
m/m
again
(-0.01%)
as
energy
prices
continue
to
provide
large
relief.
Note
that
our
unrounded
core
CPI
forecast
at
0.18%
m/m
suggests
larger
risks
for
another
dovish
surprise
to
a
rounded
0.1%
increase,”
analysts
added.

How
could
the
US
Consumer
Price
Index
report
affect
EUR/USD?

Investors
remain
optimistic
about
a
Fed
rate
cut
in
September,
but
the
market
positioning
suggests
they
are
not
fully
convinced
yet.
Hence,
a
smaller-than-forecast
increase
in
the
monthly
core
CPI,
a
reading
of
0.1%
or
smaller,
could
confirm
a
policy
pivot
in
September.
In
this
scenario,
the
US
Dollar
could
come
under
selling
pressure
with
the
immediate
reaction.

On
the
other
hand,
an
increase
of
0.3%
or
bigger
could
highlight
a
lack
of
progress
in
disinflation
and
cause
market
participants
to
reassess
the
probability
of
an
interest
rate
reduction
in
September.
In
this
case,
investors
could
price
in
a
widening
policy
gap
between
the
European
Central
Bank
(ECB)
and
the
Fed,
opening
the
door
for
a
sharp
decline
in
EUR/USD
in
the
near
term.

Eren
Sengezer,
European
Session
Lead
Analyst
at

FXStreet,
offers
a
brief
technical

outlook
for
EUR/USD
and
explains:
“EUR/USD
holds
above
the
100-day
and
the
200-day
Simple
Moving
Averages
(SMA)
following
the
pullback
seen
earlier
in
the
week,
reflecting
sellers’
hesitancy.
Additionally,
the
Relative
Strength
Index
(RSI)
indicator
on
the
daily
chart
holds
above
50
ahead
of
the
US
inflation
data,
indicating
a
slightly
bullish
bias
in
the
short
term.”

“The

Fibonacci
23.6%
retracement
level
of
the
mid-April-June
uptrend
forms
interim
resistance
at
1.0850.
Once
EUR/USD
clears
this
level,
it
could
face
next
resistance
at
1.0900-1.0915
(psychological
level,
June
4
high)
before
targeting
1.1000.
On
the
downside,
technical
sellers
could
take
action
and
force
EUR/USD
to
stretch
lower
if
the
pair
drops
below
1.0800
(100-day
SMA,
200-day
SMA)
and
starts
using
this
level
as
resistance.
In
this
scenario,
1.0750
(20-day
SMA)
could
be
seen
as
the
next
support
before
1.0680
(Fibonacci
78.6%
retracement).”