💲 USD holds ground ahead of CPI release

EURUSD failed to break above a key resistance marked with the downward trendline but holds in the vicinity of 1.1850 area. Key macro release of the day - US CPI data for August - will be published at 1:30 pm BST. It is expected that headline CPI will decelerate slightly - from 5.4% YoY in July to 5.3% YoY in August. Core inflation is also expected to decelerate - from 4.3% YoY to 4.2% YoY. However, it should be noted that the past few readings have all turned out to be higher than expected.

Taking a look at numerous factors, it cannot be ruled out that US CPI inflation will hold above 5% YoY until the end of the year. Moreover, inflation should remain elevated due to contributions from rising shelter prices. A point to note is that a clear correlation can be spotted between change in the US employment and average daily coronavirus cases in the United States. Once the Delta outbreak recedes, US employment should once again start to increase faster. This may lead the Fed to acknowledge the need for policy normalization.

Daily coronavirus case count in the United States (inverted axis) and employment change show significant correlation. Source: Nordea, Macrobond

EURUSD failed to break above the downward trendline. A beat in US inflation data may lead to another test of the shoulderline of the inverse head and shoulders pattern (1.1770). On the other hand, lower than expected price growth reading may encourage bulls to once again test the aforementioned trendline. Source: xStation5