Selling EURUSD in case of high US inflation

12 March 2024 67
Selling EURUSD in case of high US inflation

One of the most important indicators that the Federal Reserve will consider when making its next interest rate decision will be published today, it is the Consumer Price Index for February.

According to Bloomberg estimates, the inflation report, that will be released at 12:30 GMT, is expected to show headline inflation of 3.1%, in line with the year-on-year increase in prices in January.

This will be the last inflation gauge before the Fed’s next policy decision on March 20. Investors are hopeful that the central bank will cut interest rates this year.

Consumer prices are expected to rise by 0.4% in the previous month, slightly faster than January’s 0.3% monthly increase.

Excluding more volatile food and gas prices, core inflation in February is projected to rise by 3.7% compared to last year, slowing down from the 3.9% year-on-year increase seen in January, according to Bloomberg data.

Monthly core prices are expected to rise by 0.3% compared to the 0.4% increase seen in the previous month.

With a potential monthly decline in core prices, February's data should ease fears that inflation continues to accelerate after the release of January's data.

Inflation remains higher than the Federal Reserve’s target of 2% year-on-year. However, the Fed’s preferred inflation gauge — the core CPI — was below the target on a six-month annualized basis, raising hopes for interest rate cuts by the central bank.

But later data undermined that optimism as January's six-month annualized price increase reached 2.5%.

As of Monday afternoon, markets were estimating a nearly 100% probability that the Fed would keep rates unchanged next week, based on the CME Group's data.

The market now largely expects the central bank to start cutting rates at its June meeting, pricing a roughly 60% chance of a cut.

From a technical point of view, the EURUSD pair is in the overbought zone on the daily timeframe, thus it is advisable to consider fundamental conditions that will enhance the signal to sell. Such a condition for the EURUSD decline is when the actual inflation rate exceeds its projected estimates.

The overall recommendation is to sell EURUSD if official inflation figures are higher than forecast.

Profit should be taken at the level of 1.0850. A Stop-loss could be placed at the level of 1.1020.

This content is for informational purposes only and is not intended to be investing advice.

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