EURUSD Treads Water Ahead of US CPI

Macro environment supports the USD

Later in the US economic calendar, the NFIB Business Optimism Index and the IBD/TIPP Economic Optimism Index are anticipated. For the second quarter, nonfarm productivity and unit labor expenses will also be included.

Looking at the macro context, the Fed’s divergence with the majority of its G10 counterparts, particularly the ECB, and sporadic resurgences of risk aversion and geopolitical concerns, appear to be supporting the dollar.

“An unequivocally strong US July jobs report released on Friday has gone a little way to assuaging recession fears and given credence to last week’s pushback from the Fed that it was nowhere near done in terms of tightening,” said analysts at ING, in a note.

This puts the publication of the US consumer price index on Wednesday squarely in focus, with an additional high figure likely to confirm such an increase.

The July CPI figure is anticipated to decline from 9.1% to 8.7% on an annual basis. Still, a New York Fed poll revealed that consumer inflation expectations decreased dramatically in July, suggesting that this number might decline further.

Downtrend channel

The single currency still trades within a downward channel, but as the euro has failed to post new lows, chances are for a breakout from the six-months bearish trend. Should the pair jump decisively above the resistance near 1.03, we might see a furious relief rally toward 1.05.

Alternatively, the pair must drop below 1.01 to confirm the bearish bias. Until then, risks are skewed toward a rally above 1.03.