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US inflation rises faster than forecast but EURUSD pops on ECB remarks

Summary:

  • US PPI Y/Y: +3.4% vs +3.1% exp; close to 7-year high
  • USD higher on the day but EURUSD attempts to bounce on ECB comments
  • Tomorrow’s US CPI data due at 1:30PM

The latest inflation data from the US has shown a larger than expected increase in price pressures with the Y/Y reading of 3.4% the largest annual gain since November 2011. The reading was above the 3.1% expected and with the core reading also beating forecasts (2.8% vs 2.6% prior) the release could be seen as USD positive. 

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 The PPI rose to its highest level since 2011 with the core reading also extending its recent gains. Source: XTB Macrobond

The US dollar had been moving higher on the day ahead of the release but it has fallen back a little since, despite the above forecast inflation data. The EURUSD is of particular interest, in part due to the US inflation data but perhaps more so because of some comments out of the ECB. Earlier this week we noted that the ECB minutes and the US CPI (due out tomorrow at 1:30 PM and more widely follows than today’s release) could be key for the EURUSD, and we’ve seen an interesting move in the pair in the last hour.

While the US PPI could be seen as negative for the EURUSD, some comments reported by Reuters that "ECB policymakers said to be split on timing of first rate hike" have attracted buyers into the market with a move higher of more than 50 pips in the last candle. This comment has seemingly been taken to mean that the central bank could hike before the 2nd half of next year and is something of a hawkish surprise.  

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 The EURUSD has spiked higher despite the US PPI data with the market focusing more on ECB comments. Source: xStation

Looking at a daily chart the recent price action appears to be constructive with wicks below the last 2 candles and price above both the 8 and 21 EMAs - which themselves are in a positive orientation. However, price could well remain range bound unless there’s a decisive break above 1.1850 and this is an important area to look to above, should price continue to rise.

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 EURUSD is starting to look more positive as far as the recent price action is concerned but unless 1.1850 is broken above then the upside is limited. Source: xStation

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