EURUSD Forecast: It's all about US CPI

EURUSD has been struggling to hold above parity.
US annual Core CPI is forecast to decline to 6.5% in October.
The pair could regain its traction in case risk flows return.

Eren Sengezer FXStreet

EURUSD has lost its traction and declined below 1.0000 in the early European morning on Thursday. The near-term technical outlook points to a lack of buyers interest but the market reaction to the October Consumer Price Index (CPI) data from the United States could drive the pair's action in the second half of the day.

The risk-averse market atmosphere helped the US Dollar (USD) gather strength on Wednesday and caused EURUSD to snap a three-day winning streak. With investors remaining cautious early Thursday, the pair is having a difficult time shaking off the bearish pressure. The US Dollar Index, which gained 0.75% on Wednesday, was last seen posting small daily gains at 110.55.

The annual CPI in the US is forecast to decline to 8% in October from 8.2% in September. The Core CPI, which excludes volatile food and energy prices, is expected to edge lower to 6.5% on a yearly basis from 6.6%.

The USD came under heavy selling pressure on Friday after the October jobs report revealed that annual Average Hourly Earnings declined to 4.7% from 5%. The fact that investors largely ignored the better-than-expected Nonfarm Payrolls growth and reacted to the wage inflation component suggests that a soft CPI print could trigger another risk rally and weigh heavily on the USD.

On the other hand, a hot inflation report with the Core CPI coming in above September's 6.6% reading could cause investors to reconsider the possibility of one more 75 basis points Fed rate hike in December and provide a boost to the USD. In that case, EURUSD could extend its slide, at least with an immediate reaction.

EURUSD Technical Analysis

EURUSD was last seen trading slightly below 1.0000, where the Fibonacci 23.6% retracement of the latest uptrend is located. In case the pair confirms that level as resistance, it could decline toward 0.9950 (Fibonacci 38.2% retracement) and 0.9920 (100-period Simple Moving Average on the four-hour chart, Fibonacci 50% retracement).

On the upside, EURUSD is likely to face interim resistance at 1.0020 before targeting 1.0080 (the end-point of the latest uptrend) and 1.0100 (psychological level, static level).

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Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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