CPI Drops. Can the Fed Declare Victory Over Inflation?
Triple Top Formation and RSI Signal EUR/USD Reversal
Inflation is on track to drop to acceptable levels in the U.S., as shown by last week’s Consumer Price Index (CPI) release. The yearly headline figure moved from the previous 3.3% to 3.0%, while the monthly figure showed a -0.1% change from the previous 0.0%. This is especially impressive considering that the forecast for the monthly change was 0.1%. The Core CPI (month over month) also dropped from the previous 0.2% to 0.1, lower than expected.
The US Dollar weakened after the CPI numbers came out, allowing the EUR/USD to jump to a fresh 1-month high. At the time of writing, traders expect the Fed to make at least 2 rate cuts during 2024, each for 25 bps. The probability of the first cut being made in September has now swelled to 90.3%, according to the CME FedWatch tool.
Economic Calendar Highlights
The first release of the week is scheduled for Monday at 12:30 pm GMT in the form of the Empire State Manufacturing Index. This is a survey of about 200 manufacturers from the New York state, focused on business conditions.
Later in the day, at 4:00 pm GMT, Fed Chair Powell will speak at the Economic Club of Washington. Audience questions are expected, so we might see some USD movement if sensible topics are touched upon.
The U.S. Retail Sales numbers will come out Tuesday at 12:30 pm GMT, alongside the Core version of the same indicator. Considering that sales made at a retail level represent the main part of the entire economic activity, this release will potentially have a big impact on the charts.
Thursday the focus will shift towards Europe as the ECB will announce the interest rate at 12:15 pm GMT. Also, ECB President Christine Lagarde will hold the usual press conference at 12:45 pm GMT. The presser is usually a big volatility generator so caution is expected.
Technical outlook – EUR/USD
After the back and forth on the bearish trend line, the EUR bulls took the pair straight up and dominated the price action confidently. At the moment, we are dealing with a potential triple top, which is a bearish pattern that usually generates a strong move.
The previous pattern – the double top – already triggered a significant move down but if the pair bounces at 1.0900, the triple top will be complete, and we will probably see an extended move south.
Adding to the potential triple top, the Relative Strength Index (RSI) is approaching overbought territory, increasing the chances of a reversal. On the other hand, if the bulls manage to break the resistance at 1.0900, thus invalidating the triple top (and breaking the previous double top), it will indicate that the pair is set to go to new heights.
