Fundamental Analysis
The upcoming release of the US Consumer Price Index (CPI) report today is pivotal, especially for major pairs. With forecasts of a 3.4% annual increase in April, slightly lower than the 3.5% recorded in March, inflation data could influence market perception regarding the timing of the Federal Reserve (Fed) policy shift.
A 0.4% increase in monthly CPI and a 0.3% increase in core CPI are expected, suggesting a moderation in the pace of inflation. This could directly impact the valuation of the US dollar (USD) against its counterparts, especially the euro (EUR) in the EURUSD pair.
If the CPI rises more than expected, as in recent months, this could strengthen expectations that the Federal Reserve will maintain its current monetary policy rather than make short-term changes, thus bolstering the USD.
On the other hand, if CPI data align with forecasts or are lower, the US dollar (USD) is likely to weaken due to increased pressure on the Federal Reserve to ease its monetary policy, raising expectations of a change by September. In this scenario, indices like the S&P 500 could see gains, as moderate inflation data will reassure investors and crude oil prices could rise due to continually stimulated demand from lower interest rates and a weaker USD. Take into account here the bearish scenarios of technical analysis.
Technical Analysis
Dollar Index (DXY)
It has been under pressure for a month, leaving behind several supply zones, so under the current scenario and with lower US CPI data, further downside continuation is expected below the Point of Control (POC) of the first sessions at 104.95 with targets at the support from two weeks ago at 104.52, very close to the daily bearish average range.
Note a macro buying zone between an uncovered POC at 104.111 and a broken POC from 5 weeks ago at 104.33, considering that as long as the last relevant macro support at 103.88 is not decisively broken, the uptrend remains active.
On the other hand, with unexpectedly higher CPI data, we will see a strong USD rebound, activated by the breakout of volume accumulation from the first sessions around 104.95 with a target in the supply zone of the weekly opening around 105.27, very close to the daily bullish average range, which will test the last resistance of the macro downtrend correction at 105.46, whose decisive breakout will be the next signal of USD bullish renewal.
EURUSD, H1
It continues to be bullish and currently shows a slight bullish reaction after the opening, so it is possible to see a retracement towards the opening before the release of the CPI, to trigger a new price rally towards 1.0853 and resistance at 1.0886 with lower CPI data. On the other hand, a strong breakout below 1.0813 will trigger a further decline towards 1.0790 and 1.0780, especially if CPI data turn out to be higher.
*Uncovered POC: POC = Point of Control: It is the level or zone where the highest volume concentration occurred. If there was a downward movement from it previously, it is considered a selling zone and forms a resistance zone. Conversely, if there was a bullish impulse previously, it is considered a buying zone, usually located at lows, thus forming support zones.
Risk Warning
This analysis does not constitute investment advice or an offer to engage in financial transactions. Although all investment involves risks, trading foreign exchange and other leveraged assets can involve significant losses. A complete understanding of the risks before investing is recommended.
