US CPI largely came in line with expectations though the core MoM measure printed a touch below consensus. Markets seem to have latched onto the latter with a knee-jerk hit to the USD. However, EUR/USD rallies are likely to fade, according to Mazen Issa, Senior FX Strategist at TD Securities.
See: EUR/USD to suffer a substantial drop to 1.16 on a slide below 1.17 – SocGen
EUR/USD could see a break below 1.17
“The USD got hit on a softer core moM print (despite matching expectations on the core YoY measure), perhaps helping to reduce 'normalization' bets on the Fed. This is most important for EUR/USD as it was pressing into key support at 1.17.”
“While the market may view this as relief on the inflation front, it's not likely to really shift the balance of risk for the USD beyond intraday noise. We reckon that dips in the USD will fade as payrolls matter more for the taper discussion than what is a well-known story of 'transitory' inflation pressures peaking.”
“First fade level comes in at 1.1750.”
