EUR/USD could breakout after CPI data

EUR/USD could see a lift in volatility from the CPI data if it deviates significantly from expectations. 

Economists estimate that the data will show prices in the US to have risen by 3.4% Year-over-Year in March and 3.7% YoY for core goods, which excludes volatile food and energy prices. 

Results in line with expectations would still indicate an inflation rate well above the Federal Reserve’s (Fed) 2.0% target. A greater decline would be required before the Fed is likely to bring down interest rates from their current 5.5% level.  

In contrast to the Fed, the European Central Bank (ECB) is seen as more likely to cut interest rates earlier amid more subdued growth and inflation expectations. 

For EUR/USD, the maintenance of higher interest rates in the US compared to the Eurozone is a bearish factor. This is because relatively higher interest attracts foreign capital inflows, favoring the US Dollar in this case.