EURUSD: CPI Already Priced In, Looking for a Moderate PPIEuro vs US DollarICMARKETS:EURUSDcurrencynerdafter a softer-than-expected U.S. CPI report, the market has already repriced Federal Reserve expectations. Treasury yields declined, the U.S. dollar weakened, and EUR/USD rallied before retracing into a nearby demand area. With PPI next on the calendar, the focus shifts to whether producer inflation confirms the disinflation narrative rather than reversing it. Technically, EUR/USD is now testing support around 1.14133, an area where buyers previously stepped in. The current pullback appears corrective rather than impulsive, keeping the short-term bullish structure intact while price remains above the proposed invalidation level. Why a Moderate or Softer PPI Remains the Higher Probability The latest CPI report showed inflation pressures easing more than markets anticipated. Historically, PPI and CPI exhibit a moderate positive correlation, with long-run studies generally finding a Pearson correlation of roughly 0.5–0.7. They do not move together every month, but they tend to follow the same broad inflation trend over time. There are known factors that can cause divergence between the two reports: Energy: Oil prices remain elevated but have largely stabilized rather than accelerating sharply. There has been no fresh commodity shock large enough to materially alter producer inflation expectations. Tariffs: Existing tariffs continue to affect some goods prices, but there has been no significant new tariff escalation immediately before this release that would be expected to dominate the data. Healthcare and Shelter: These categories carry much greater weight in CPI than in PPI. Their influence helps explain differences between the reports, but they are unlikely to drive today's producer price release. Wholesale Margins: Businesses continue to face competitive pricing pressures, limiting their ability to pass higher input costs directly to consumers. Taken together, these factors suggest that while divergence between CPI and PPI is always possible, there is currently no clear macro catalyst indicating those divergence drivers should outweigh the broader disinflation trend established by the latest CPI report. That does not guarantee a softer PPI, it simply means the evidence does not strongly favor a major upside surprise. Trade Setup Bias: Bullish Entry: 1.14133 Stop Loss: 1.13967 (16.6 pips) Take Profit (1:3 RR): 1.14631 (49.8 pips) Trade Thesis A moderate or softer PPI would reinforce the market's view that inflation continues to cool, reducing pressure for a more hawkish Federal Reserve. That outcome would likely keep Treasury yields under pressure, weigh on the U.S. dollar, and allow EUR/USD to resume its broader move higher. A hotter-than-expected PPI would challenge this view and could trigger a break below 1.13967, invalidating the bullish setup. Key Insight The market has already reacted to CPI. PPI now serves as a confirmation or rejection—of that repricing. With CPI and PPI generally moving in the same direction over longer horizons, and no dominant divergence catalyst currently evident, the balance of evidence slightly favors a moderate-to-softer PPI, supporting the bullish case for EUR/USD. This remains a probability-based view rather than a certainty. put together by : Pako Phutietsile as @currencynerd