EUR on Backfoot as Easing German Inflation Reinforces ECB Caution


EUR Analysis and Talking Points

  • Easing German Inflation keeps Euro under pressure
  • Eurozone economic sentiment slips amid rising trade war uncertainty.

Easing German Inflation Reinforces ECB Caution

The Euro remains under pressure as the USD regains its allure, alongside this, a slew of regional German inflation figures have shown both the M/M and Y/Y readings ease off a touch, which is in line with the consensus for the national report (1200GMT). Consequently, this gives the ECB doves reason to remain cautious with regard to its first interest rate hike, which is not seen until at least after summer 2019.

Regional CPI Figures

North Rhine Westphalia: 0.1% (Prev. 0.4%) M/M, 2.1% (Prev. 2.1%) Y/Y

Baden-Wurttemberg: 0.2% (Prev. 0.5%) M/M, 2.4% (Prev. 2.5%) Y/Y

Bavaria: 0.2% (Prev. 0.5%) M/M, 2.4% (Prev. 2.3%) Y/Y

Hesse: 0% (Prev. 0.5%) M/M, 1.8% (Prev. 1.9%) Y/Y

Brandenburg: 0% (Prev.0.7%) M/M, 2.2% (Prev. 2.4%) Y/Y

Saxony: 0.1% (Prev. 0.5%) M/M, 2.1% (Prev. 2.2%)

Eurozone Economic Sentiment Slips Confirms Slowing Economy

Eurozone economic sentiment fell in June to 112.3, as managers and consumers in the construction sector became more downbeat amid the rising uncertainty surrounding trade wars, however the decline was less than expected. The fall in sentiment readings reaffirm a cooling of the Eurozone economy in Q2 18, which is at a time when the ECB are looking to exit their expansive monetary policy. As a reminder, the latest staff projections from the ECB showed a downgrade to 2018 growth to 2.1% from 2.4%.

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EURUSD PRICE CHART: TIME FRAME (December 2017- June 2018)

EUR on Backfoot as Easing German Inflation Reinforces ECB Caution

Chart by IG

EURUSD potentially set for making a test of the near-term base at 1.1510, a break below would suggest that the downtrend remains intact with 1.1448 the next support level of significance. On the upside, key resistance is seen at 1.1720.

IG Client Positioning states the combination of current sentiment and recent changes gives us a stronger EURUSD-bearish contrarian trading bias. For full client positioning click here

— Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX





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