US Dollar Struggles Despite Strong Job Growth

CPI Release Expected to Impact Currency Markets.

The US Dollar is threading water and showing signs of weakness despite better-than-anticipated numbers for the Non-Farm Payrolls report. Last Friday, data showed that 253K new jobs were created, surpassing the forecast of 181K and the previous 165K. The Unemployment Rate dropped to 3.4% from the previous 3.5% (forecast 3.6%) and the Average Hourly Earnings increased to 0.5% (forecast 0.3%).

The Fed raised the interest rate by 25 bps as expected and hinted that the hiking cycle may be over. This could be a reason why the greenback is showing signs of weakness. Since the Euro and other peers still have at least one more hike ahead, traders are favoring them against the US Dollar.

Fed Chair Powell mentioned several times that future rate hikes will be data-dependent and this week the CPI comes out. Considering that all these rate hikes are aimed at bringing down inflation and that the CPI is the main gauge of inflation, we can expect to see a bit more movement on the charts.

Key Data for the Week Ahead

The biggest release of the week is also the first worth mentioning: Wednesday at 12:30 pm GMT the U.S. Consumer Price Index comes out. At the same time, the Core version will be released. This version is usually the one that makes the bigger waves because it excludes food and energy from the calculation and is considered more accurate. The forecast for the CPI is 0.4% (previous 0.1%) and for the Core CPI is 0.3% (previous 0.4%).

Thursday at 11:00 am GMT, the Bank of England will announce the Official Bank Rate, which is expected to increase from the current 4.25% to 4.50%. Pound traders should keep an eye on it and on the press conference that follows half an hour later.

Thursday at 12:30 pm GMT we take a look at the U.S. Producer Price Index (PPI) and Core PPI. These are leading indicators of economic health with inflationary implications so they can affect the greenback.

The last notable release of the week will be the UoM Consumer Sentiment survey which will be released Friday at 2:00 pm GMT.

Technical Outlook – EUR/USD

After reaching 1.1000 the pair started to drift sideways and even major releases weren’t able to generate directional impulse. Wednesday and Friday (interest rate announcement and NFP release, respectively), EUR/USD moved less than 100 pips, bouncing above and below 1.1000.

Currently, the pair is trading at 1.1045, with some bullish momentum. The first resistance is located at 1.1080 – 1.1100 and there’s a good chance to see a touch of these levels.

Under normal circumstances, the CPI release would create strong movement and a break out of the tight range near 1.1000. It will be interesting to see how the USD will behave at release time, considering that other major releases didn’t do much to the price action last week.