EURUSD surges above 1.0200 after a soft US CPI report

• CPI data in the United States cooled down, weighing on the American Dollar.
• US Treasury bond yields plummeted as traders expected a less aggressive Federal Reserve.
• Fed officials remain committed to tackling inflation after welcoming October’s report.
• European Central Bank policymakers to keep raising rates, albeit recession fears increased.

The Euro rallies sharply amid broad US Dollar (USD) weakness, spurred by a softer US October Consumer Price Index (CPI) report. Increasing speculations during the week that the Federal Reserve (Fed) might slow the pace of rate hikes was further confirmed by investors’ reaction, with US equities rallying while US Treasury bond yields plunged. The EURUSD is trading at 1.0209, above its opening price by 2%.

US CPI bolsters the EUR to the USD detriment

Before Wall Street opened, the US Department of Labor reported that headline inflation, as reported by the CPI, rose by 7.7% YoY, below estimates of 7.9%. Even though the CPI continued its downtrend for the fourth last months, the core CPI bucked the trend. Nevertheless, October’s core CPI, which exclude volatile items inflation, like food and energy, fell to 6.3% YoY, vs. 6.5% expected and beneath the previous month’s 6.6% reading. Traders reacted, and the Euro soared more than 200 pips after the release, toward 1.0150, while the USD tanked.

The US Dollar Index (DXY), a gauge that measures the American Dollar value against six currencies, including the EUR, dives almost 2.50%, down from 110.992 to 107.804. It’s the DXY’s most significant drop since March 18, 2009, when it fell by 3%.

Meanwhile, additional US data crossed newswires. The US Initial Jobless Claims for the week ending on November 5 rose by 225K, exceeding estimates of 220K, signaling that the labor market might be easing.

US Treasury yields sank

Given that inflation in the US eased, the US Treasury yields plunged severely. The US 10-Treasury bond yield tumbled 28 bps, from 4.117% to 3.814%, as traders began to reprice gradual interest-rate increases by the Fed. The CME FedWatch Tool shows that the odds for a 50 bps rate hike by the Fed’s December meeting are at 80.6%, up from Wednesday’s 50%.

Fed policymakers cheered the inflation report

Meanwhile, some Fed officials welcomed October’s CPI report, though they acknowledged there’s more work to do. The Dallas Fed President Lore Logan said, “there is still a long way to go.” Meanwhile, San Francisco Fed President Mary Daly said, “stepping down is an appropriate thing to think about,” while foreseeing the Federal Funds rate (FFR) to peak at 4.90%.

Cleveland’s Fed President Loretta Mester said that inflation will moderate and reach the Fed’s target by 2025. Mester added that the US economy’s behavior would determine how high the Fed needs to go.

ECB members remained hawkish, although recession fears arose

Elsewhere, some European Central Bank (ECB) speakers led by the German Bundesbank President Joachim Nagel crossed wires. Joachim Nagel said that there is potential for interest rate hikes. Echoing his comments was the ECB Governing Council (GC) member Isabel Schnabel, saying that inflation is gaining traction and it’s stickier. She commented that rates need to be raised into restrictive territory, even though recession risks have increased.

EURUSD Price Analysis: Technical outlook

Given the abovementioned backdrop, from a technical perspective, the EURUSD is neutral-to-upward biased. Of note, EUR buyers reclaimed the 100-day Exponential Moving Average (EMA) at 1.0028, and it’s aiming toward 1.0300. The break above will expose the August 10 high at 1.0368, ahead of the 1.0400 figure. Once cleared, the next stop would be the 200-day EMA at 1.0437. On the other hand, key support levels lie at 1.0200, which, once cleared, would open the door towards 1.0100, followed by a re-test of the 100-day EMA at 1.0028.