Selling EURUSD on high US inflation readings

The US Consumer Price Index (CPI) report is a crucial macroeconomic trigger that could shake up the EURUSD pair.

There are the four key markers for July:

Annual CPI is forecast at 3.4%, down from 3.5% in June.

Monthly CPI is expected to rise 0.1%, rebounding from a 0.4% decline.

Core monthly CPI is projected at 0.2%, compared to unchanged figures for the previous period.

Core annual CPI is seen at 2.5% for July, easing from 2.6% in June.

The consensus forecast among analysts points to a moderate slowdown in inflationary pressure on an annual basis. However, month-over-month readings are likely to gain upward momentum following unexpectedly weak June figures. With core CPI still holding noticeably above the Federal Reserve’s (Fed) 2% target, this report will play a decisive role in shaping the US central bank’s rate outlook.

Based on this macroeconomic backdrop, two main scenarios emerge for the pair:

Scenario 1. Inflation meets or falls below expectations (“bearish” dollar)

If the final figures confirm a slowdown in annual inflation to 3.4%, with the core reading declining to 2.5%, this would send a powerful signal to the market. A soft report would ease concerns over persistent price pressures in the US. Under new chair Kevin Warsh, the Fed could gain substantial grounds to adopt a more dovish tone or even prepare for a rate cut.

In this scenario, the greenback would likely come under pressure, driving EURUSD sharply higher.

Scenario 2. Inflation exceeds forecasts (“bullish” dollar)

If geopolitical tensions and energy price volatility trigger a hotter-than-expected release—with annual CPI remaining at 3.5% or above and the monthly core index exceeding 0.2%—the balance of power could shift abruptly. Sticky inflation would tie the Fed’s hands, forcing the regulator to keep borrowing costs higher for longer.

Under these circumstances, the American currency would immediately strengthen across the board, lifting the dollar index (DXY). The EURUSD pair, in turn, could face a wave of selling and head lower, refreshing local support levels.

The overall recommendation is to sell EURUSD if inflation comes in above expectations. Profits should be taken at 1.1440. Stop Loss could be set at 1.1580.

The volume of the open position should be calculated so that the potential loss (protected by a Stop Loss order) does not exceed 1% of your deposit. If your account balance does not allow opening a position of this size, it is better to avoid entering the market on this signal and wait for other trade options that meet low-risk criteria.