EUR May Strengthen After German Inflation Data


EUR TALKING POINTS:

German inflation likely rose closer to the ECB’s target for the Euro-Zone of below, but close to, 2% in March.

That would increase the pressure on the central bank to increase interest rates and could therefore give the Euro a boost.

TRADING THE NEWS: GERMAN INFLATION

Euro-Zone economic calendar for March 29.

Germany publishes its provisional inflation figures for March at 1200 GMT today and a sharp rise is expected, potentially increasing the pressure on the European Central Bank to increase Euro-Zone interest rates and thereby plausibly boosting the Euro.

However, the numbers will be particularly hard to trade as they are preceded by data from individual German Länder – or federal states – between 0700 and 1000. Inflation figures for the Euro-Zone as a whole, which are usually published just after the German numbers, will not be released until Wednesday next week because of the Easter holidays.

Germany’s inflation report will be issued against the background of a fairly stable EURUSD exchange rate since February after its strength between mid-December and the end of January.

EURUSD PRICE CHART, DAILY TIMEFRAME (December 6, 2017 – March 28, 2018)

Updated EURUSD daily price chart.

Chart by IG

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However, a strong jobs report could lift the Euro as it would point to increased upward pressure on wages – and that could be followed by further gains for the currency if the data from the individual Länder point to firm numbers for Germany as a whole. The consensus forecast is for a rise in German consumer prices of 1.7% year/year but some analysts are expecting a figure as high as 1.9%, up from 1.4% previously.

That is principally because Easter falls early this year so higher prices for package holidays over the break will boost this month’s figures rather than April’s, as they do usually. By the same logic, April’s numbers could fall back. However, core inflation is picking up too and that will increase German pressure on the ECB to raise rates.

The central bank has said that it will only increase interest rates “well past” the end of its asset-purchase program but its policymakers are reportedly shifting their debate to the expected path of interest rates even though no major change in monetary policy is expected next month.

Impact of past inflation data

The importance of the German inflation data can be seen in the chart below. The Euro fell sharply when the last set of figures were released a month ago, showing an unexpected fall to 1.4% from 1.6%.

EURUSD PRICE CHART, TWO-HOUR TIMEFRAME (February 22, 2018 – March 28, 2018)

Latest EURUSD two-hour price chart.

Chart by IG

EURUSD levels to watch out for

The key levels to watch for in EURUSD are Tuesday’s high of 1.2477 and the February 16 high of 1.2556. If those are taken out, EURUSD will be back to levels last seen in December last year. To the downside, the principal support levels are the March 20 low of 1.2239 and the March 1 low of 1.2154.

Meanwhile, German jobs data released this morning showed a better than expected drop of 19,000 rather than the 15,000 fall forecast. Early figures from several German states all showed inflation higher year/year.

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— Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

Follow Martin on Twitter @MartinSEssex





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