The US CPI (Consumer price index) inflation report was anticipated by market participants after a stronger-than-expected PPI (producer price index) report earlier this week. Analysts were expecting stock markets and risk assets to tumble 5% lower, while the USD to surge higher.

That’s exactly what happened, but only for about an hour. Then we saw a really strong reversal, with stock markets gaining around 5%, while the USD suffered some heavy losses. That was a strange move, although one of the possible reasons is that traders were heavily long on the USD before and after the report was released and then closed their trades, which triggered the reversal.

EUR/USD increased above 0.98, but yesterday USD buyers returned and the USD resumed the uptrend. After all, the CPI report was strong and the FED is set for a 0.75% increase. The WSJ leaker-in-chief, Nick Timiraos came out with his post-inflation report which ‘seals the case’ for a 75 bps rate hike from the FED on November 2.

“The report also raises the risk officials will delay an anticipated slowdown in the pace of rate rises after that or signal that they are likely to raise rates to even higher levels early next year than previously anticipated by policymakers and investors,” he writes.

The odds of a 1.00% rate hike in the next meeting are 11%, down from 13% previously. Nonetheless, this is a hawkish outlook and the USD has benefited from it, as most USD pairs resume the downtrend. The terminal top is priced at 4.92% now, suggesting a chance of the Fed going above 4.75-5.00% in Q1.

EUR/USD Daily Chart – The Downtrend Continues

This week’s bullish move doesn’t even count on the daily chart

 EUR/USD surged around 180 pips higher, climbing above 0.98, but yesterday sellers returned and the downtrend resumed again. So, the USD looks set for further gains this week, with the economic calendar being light in the US. So, we will try to pick retraces higher and sell this pair.

EUR/USD Live Chart