The Consumer Price Index data report is scheduled for release at 12:30 GMT, on April 12. A softer-than-expected reading, especially in the monthly core inflation, could revive expectations for the Fed to keep its policy rate unchanged at the upcoming meeting.
While speaking at the post-meeting press conference in March, Federal Reserve Chief Jerome Powell said that the story on disinflation was intact. Although Powell also reiterated that they are not yet seeing progress on core services inflation ex-housing, he acknowledged that they need to be alert when thinking about further rate hikes given the potential impact of credit tightening on the economy.
On the other hand, the March jobs report revealed that Nonfarm Payrolls rose by 236,000 in March, slightly below the market expectation of 240,000. Additionally, the Unemployment Rate edged lower to 3.5% while the annual wage inflation, as measured by the Average Hourly Earnings, edged lower to 4.2% from 4.6%. One could argue that the US labor market remains relatively healthy but there are signs of softening. Hence, March CPI data could help investors decide if they should bet on one more Fed rate increase. According to the CME Group FedWatch Tool, the probability of a 25 bps rate hike currently sits at around 70%.
In case of a disappointing CPI print, the US Dollar will likely see a fresh leg lower, allowing the EUR/USD pair to regather bullish momentum. Conversely, a surprisingly hotter US CPI reading is likely to reaffirm another 25 bps Fed hike and provide a boost to the USD, forcing EUR/USD to turn south.
FXStreet Analyst Eren Sengezer offers a brief technical outlook for the major and explains: “EUR/USD’s bullish bias stays intact in the near term as the 20-day Simple Moving Average (SMA) continues to pull away from the 50-day SMA following the bullish cross seen in early April. Furthermore, the Relative Strength Index (RSI) indicator on the daily chart holds comfortably above 50, highlighting the lack of seller interest.
Eren also outlines important technical levels for the EUR/USD pair: “On the upside, interim resistance seems to have formed at 1.0950/60 area. Once the pair clears that levels and confirms it as support, 1.1000 (psychological level) aligns as the next bullish target before 1.1035 (2023 high) and 1.1100 (psychological level, static level). On the downside, a daily close below 1.0800 (20-day SMA) could ramp up the bearish pressure and open the door for an extended slide toward 1.0740 (50-day SMA) and 1.0700 (100-day SMA).”
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