• EUR flash CPI estimate Y/Y: 1.9% vs 1.6% exp
  • Core CPI flash estimate 1.1% vs 1.0% exp
  • EURUSD above 1.17

The most recent inflation data from the Euro area has shown a sharper increase than expected with the Y/Y reading rising to its highest level since last April. The flash CPI estimate came in at 1.9% vs 1.6% expected, marking a fairly drastic increase on the 1.2% seen previously. A fair part of this rise could be attributed to the surging oil price, but underlying price pressures seem to also be gathering momentum with a core reading of 1.1% compared to 1.0% expected and 0.7% prior.  

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 Euro area inflation has picked-up sharply in the last month and is close to its highest level in several years. Source: xStation

Expectations were raised for today’s release due to a far higher German print yesterday afternoon. A Y/Y increase for Germany of 2.2% compared to the 1.9% expected was always likely to contribute to a strong reading for the Euro-wide measure, and with the latter now almost back at the 2.0% ECB mandate, should it sustain around these levels then it could well start to impact the bank’s policy in the not too distant future. The ECB is expected to wind down is Asset Purchase Programme later this year as it begins the path to monetary policy normalisation, but if this recent rise in inflation proves lasting then they could well move sooner or tighten more aggressively.

Yesterday’s trade in the EURUSD saw a possible reversal signal with a bullish engulfing candlestick printed on the daily chart, with buyers managing to step in and successfully defend the key longer term level around 1.15. If this low can hold then the market could look to recover some of the declines seen over the past month, with the market in a near-constant state of decline from the 1.23 region. 

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 Should Wednesday’s low around 1.15 hold then fib retracements of the decline could offer possible resistance levels with the 23.6% the first to look to at 1.1756. Source: xStation

The DE30 is another market that can obviously be sensitive to Euro area inflation and ECB policy, and there’s been some weakness seen in the German stock index so far this morning. Yesterday saw a strong gain for the market, but after pulling back to the middle of the Bollinger Band on H4, the market could now be set to turn lower once more.  

link do file download link has moved back to the middle of the Bollinger band on H4 after bouncing from the lower bound. Source: xStation