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EUR/USD Forecast: August opening range susceptible to sticky US CPI

Source: Bloomberg

EUR/USD rate talking points

EUR/USD initiates a series of higher highs and lows as it attempts to retrace the bearish reaction to the US Non-Farm Payrolls (NFP) report, but fresh data prints coming out of the US may continue to influence the exchange rate as the update to the Consumer Price Index (CPI) is anticipated to show sticky inflation.

EUR/USD forecast: August opening range susceptible to sticky US CPI

EUR/USD appears to be unfazed by the hawkish comments from Federal Reserve Governor Michelle Bowmanas it consolidates within the opening range for August, and it remains to be seen if the US CPI will influence the exchange rate as the headline reading is expected to narrow to 8.7% from 9.1% per annum in June.

Source: DailyFX

However, another uptick in the core CPI may lead to a bearish reaction in EUR/USD as the index is projected to increase to 6.1% from 5.9% per annum during the same period, and evidence of sticky inflation may push the Fed to carry out a highly restrictive policy as Governor Bowman warns of “a significant risk of high inflation into next year.”

In turn, the Federal Open Market Committee (FOMC) may retain the current path in implementing higher interest rates as Governor Bowen argues that “similarly-sized increases should be on the table until we see inflation declining in a consistent, meaningful, and lasting way,” and expectations for another 75bp Fed rate hike in September may drag on EUR/USD with Chairman Jerome Powell and Co. on track to push the Fed Funds rate above neutral.

Until then, fresh data prints coming out of the US may sway EUR/USD as it consolidates within the opening range for August, while the tilt in retail sentiment looks poised to persist as traders have been net-long the pair for most of the year.

Source: DailyFX

The IG Client Sentiment report shows 51.34% of traders are currently net-long EUR/USD, with the ratio of traders long to short standing at 1.05 to 1.

The number of traders net-long is 6.93% lower than yesterday and 10.16% lower from last week, while the number of traders net-short is 22.21% higher than yesterday and 28.92% higher from last week. The decline in net-long position comes as EUR/USD tracks the opening range for August, while the jump in net-short interest has alleviated the crowding behavior as 55.90% of traders were net-long the pair last week.

With that said, EUR/USD may continue to consolidate as the recovery from the yearly low (0.9952) fails to produce a test of the former support zone around the May low (1.0349), but the update to the US CPI may drag on the exchange rate should the data print fuel speculation for another 75bp Fed rate hike.

EUR/USD rate daily chart

Source: TradingView

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.


The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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