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Euro spikes to 1.145 after CPI report

The EURUSD pair surged 0.67% to 1.1453 on Wednesday, January 12. The greenback came under pressure after inflation data came out stateside.

The CPI numbers outpaced the median consensus, printing the steepest surge in the country since 1982. The report failed to lend support to the dollar, as market participants had already factored the first rate hike into prices. The retreat in UST yields negatively impacted the dollar as a defensive asset. Despite the red-hot headline inflation numbers, the market opted for a “buy the rumor, sell the news” strategy.

Consumer prices for December climbed 0.5% MoM, and 7.0% YoY compared to the projected 0.4% MoM, 7.0% YoY and readings of 0.8% MoM 6.8% YoY in November. The core CPI in December increased by 0.6% MoM, and 5.5% YoY against the median consensus of 0.5% MoM, and 5.4% YoY (vs. in November 0.5% MoM and 4.9% YoY in November).

Today’s macro agenda (GMT+3)

  • 11:45 UK: BoE MPC member Catherine Mann speech
  • 12:00 EU: ECB economic bulletin
  • 12:30 UK: BoE credit conditions survey
  • 16:30 US: PPI (December)
  • 16:30 US: initial jobless claims
  • 17:30 EU: ECB member Frank Elderson speech
  • 18:00 US: FOMC member Lael Brainard speech       

Current outlook

By the time of writing, the euro was trading at 1.1442. Major currencies are slightly higher against the dollar. Price action finally exited the 1.1222-1.1865 range, touching a high of 1.1453. Given yesterday's reaction to the CPI data, the door for buyers is now open to 1.1590. Many pairs have reached pivotal price levels. After a breather, we expect the upside to resume. Thus, an offensive against the dollar will start either at the opening of the European session, or else we will see a retreat to the support zone of 1.1415-1.1420.

Bottom line: on Wednesday, the euro closed higher after US inflation data for December was released. The decline in UST yields exerted a negative impact on the dollar as a defensive asset. EURUSD broke out of the 1.5-month range, reaching 1.1453. The door to 1.1590 is  open for buyers, while continued gains can be expected via a pullback to the 1.1415-1.1420 zone.




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