Risks Skewed to the Downside for Eurozone Inflation


Euro Analysis and Talking Points

  • Risks tilted to the Downside for Eurozone Inflation
  • Core inflation expected to remain at 1%

For a more in-depth analysis on EUR, check out the Q1 Forecast for EUR

Risks tilted to the Downside for Eurozone Inflation

Ahead of today’s Eurozone inflation figures, risks are tilted to the downside with the headline reading expected to fall further away from the ECB’s inflation target amid the drop-in oil prices. Analysts see the headline rate dipping 0.1ppt to 1.8%. However, given the most recent German inflation figures which dropped to 1.7% from 2.3% and French CPI missing expectations at 1.9% (Exp. 2%), there is scope for a 1.7% reading. This is turn may not bode well for EURUSD.

While headline inflation is expected to dip, core inflation is seen remaining at 1%, which is typically what the ECB play close attention to. Consequently, EURUSD may see somewhat of a muted reaction, particularly given that external events, such as the deteriorating US data (Yesterday’s ISM) has been dictating the price action for the Euro. Eyes on US Labour report and comments from Powell.

EURUSD Price Analysis: Risks Skewed to the Downside for Eurozone Inflation

Source: Refinitiv. Euro Area inflation and core inflation.

EURUSD PRICE CHART: Daily Time Frame (Jul 2018 – Jan 2019)

EURUSD Price Analysis: Risks Skewed to the Downside for Eurozone Inflation

Thus far EURUSD has struggled to maintain a firm foothold above 1.14, while strong support at 1.13 has keep the pair afloat. Price action in EURUSD has largely been supported by the weakening data in the US. However, trendline resistance from the September 2018 peak has held so far. A break above however, raises the scope for 1.1550.

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— 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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