Pre-CPI USD Price Action Setups: USD/JPY, EUR/USD, GBP/USD, Gold

CPI, U.S. Dollar Talking Points:

• It’s been a bearish backdrop for the USD since the January high and that backdrop has been driven by lower CPI readings. But that could change tomorrow with both headline and Core CPI YoY expected to increase.
• The bigger question is whether USD can force a turn. At this point the technical backdrop remains open for such as prices have been unable to test the April lows. USD/JPY remains a big piece of this equation as bigger picture carry unwind has taken a step back since the 140.00 test in late April.
• This is an archived webinar and you’re welcome to join the next. Next week’s installment will take place ahead of the FOMC rate decision and it will be a pre-FOMC Price Action Setups session. Click here to register.

U.S. Dollar

 

It’s been tough going for USD bulls so far this year, even though the currency came into 2025 trade with a full head of steam. Indecision began to show in January, and sellers started to appear in February, helped along by lower-than-expected CPI readings. By the time March rolled around, there was legitimate fear of recession potential, coupled with confusion around tariffs, and that allowed for a breakdown in the Buck that continued into the Easter Monday holiday. And that’s when a massive spot of long-term support appeared that remains in effect today.

 

U.S. Dollar Weekly Chart

Chart prepared by James Stanley; data derived from Tradingview

 

USD Dynamics

 

Interestingly the Fed was sounding somewhat hawkish earlier in the year around the tariff scenario. But, if we draw back to CPI data, headline CPI began to perk up after the Fed started cutting rates, and this started to look like the FOMC had made a mistake by going so dovish in September when they cut rates by 100 bps into the end of the year.

Headline CPI moved from 2.4% in October up to 2.6% in November, and then 2.7% in December and 2.9% at the January release. At that stage, the question had to be asked – did the Fed make a mistake by cutting too early, when neither core or headline CPI had printed below their 2% target?

Headline CPI peaked at 3.0% in February and that’s right around the time that USD bears began to show up; slowly at first as EUR/USD held support at a key Fibonacci level of 1.0200, but then far more visibly in March when DXY began to break down.

Headline CPI scaled down, as well, and on the US Dollar chart below, we can see large bearish moves at CPI prints each of the past two months. In April, USD bears saw a 2.4% headline CPI print, leading to a strong extension of the sell-off. And then on May 13^th, just after the USD had tested the 102.00 handle, a 2.3% headline CPI reading drove another bearish wave in the trend.

For tomorrow, headline CPI is expected to perk up to 2.5% YoY and Core CPI up to 2.9% from last month’s 2.8% print. This could bring question to the expectation for rate cuts which currently shows an expected 50 bps of softening into the end of the year.

 

U.S. Dollar Daily Chart (5 Most Recent CPI releases Highlighted)

Chart prepared by James Stanley; data derived from Tradingview

 

USD/JPY

 

I continue to say that USD/JPY brings a large bearing on U.S. Dollar price action, perhaps more than the 13.6% clip of the Japanese Yen in the U.S. Dollar basket. At the end of the day, a market is driven by supply and demand and one-sided moves in any could lead to crowded positioning prone to reversals. The carry trade that started to spark in 2021 still matters, as USD/JPY is about 40% above levels at the open of that year. As Japanese yields have lifted as driven by higher inflation, the motivation for traders still holding long USD/JPY to close positions has increased. But, so far, USD/JPY bears haven’t been able to make much ground below that 140.00 level which held support again in April.

This remains a hot button for the USD and if we are going to see a larger USD turn, it seems that USD/JPY bulls are going to need to drive. In the webinar, I looked at the shorter-term backdrop in the pair which retains bullish potential as shown by an ascending triangle, and resistance at the 145.00 handle.

USD/JPY Four-Hour Price Chart

Chart prepared by James Stanley; data derived from Tradingview

 

EUR/USD

 

The Euro put in a strong rally in Q1 and through April but really it seems the move was more driven by USD-weakness than anything especially strong taking place in the Eurozone. But, as I said in the webinar, we must call this what it is and given the recent patterning of higher-highs and lows, that’s a bullish backdrop from the four-hour chart.

There is a bit of deduction that could be construed as a positive for bears, however, as last week presented an ideal situation for bulls to force a break over the 1.1500 handle, in the wake of the ECB rate decision where Christine Lagarde sounded less dovish. Not only did the pair fail to break that price, it also failed to even test the level, with sellers coming in five pips before the 1.1500 price could trade.

I remain of the mind that for USD-reversal scenarios, EUR/USD is of attraction. The lower-high that has held so far is one reason, but this also contrasts with the fresh three-year high that printed in Cable (GBP/USD) last week or the fresh 2025 low that printed in USD/CAD.

For this to look interesting for a turn, bears need to push through the 1.1363-1.1372 zone to begin exhibiting greater control of near-term trends.

 

EUR/USD Four-Hour Price Chart

  

Chart prepared by James Stanley; data derived from Tradingview

 

GBP/USD

 

For USD-weakness, I still think GBP/USD or USD/CAD present more compelling backdrops. I wrote about USD/CAD in-depth on Friday and much of that backdrop remains, and in GBP/USD, the pair set a fresh three-year high on Thursday and has so far pulled back for another support test of the 1.3500 handle.

As shared in the webinar, There’s deeper scope for support but for bullish momentum, bulls need to show up to hold lows above the 1.3414 Fibonacci level. Or else deeper pullbacks will look more attractive although in that backdrop, I anticipate a more attractive venue for USD-strength in the EUR/USD setup looked at above.

GBP/USD Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

 

Gold

 

Gold can be sensitive to CPI prints such as we saw last February. There were only two days in 2024 trade when spot Gold closed below the $2k/oz level, and those both took place in the aftermath of a CPI report released in February. That was followed by some very dovish-sounding comments from Chicago Fed President, Austan Goolsbee, and that seemed to spark the epic bull run that showed in the eight months after, with gold rallying by more than 40% at one stage until ultimately building a bull pennant into the end of the year.

 

More recently, bulls have stalled at the $3,500/oz level but they’ve remained active on support tests, including a more recent patterning of higher-highs and lows. If we do see CPI disappoint tomorrow, this is the market that I think could be more attractive than bullish breakout scenarios in GBP/USD or EUR/USD, or bearish breakdowns in USD/CAD or USD/JPY.

Gold Four-Hour Price Chart

Chart prepared by James Stanley; data derived from Tradingview

 

--- written by James Stanley, Senior Strategist