EU Inflation & EURUSD Above 1.07 Soon?

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During the next few hours and days, many economic figures will be released from Europe, which traders need to watch very carefully, as it is likely to have a notable impact on the Euro.

This week is the inflation week for the Euro Zone. Today, we will be watching France and Italy’s inflation figures, followed by the German inflation tomorrow and finally on Thursday, which set to be the most significant day, we will be watching the inflation figures of the Euro Zone.

Expectations

Indicator Forecast Prior
France CPI 0.4% -0.2%
Italy CPI 0.1% 0.2%
German CPI 0.6% -0.6%
Euro Zone CPI 1.8% 1.8%
Euro Zone Core CPI 0.9% 0.9%

Looking at the table above, it shows that the estimates are a little bit mixed. However, it’s mostly positive.

For the past few months, inflation has been rising gradually, but recently, the inflation data is actually overshooting, which puts more pressure on the ECB to withdraw the current stimulus packages as soon as possible.

In December, the ECB promised the market to start tapering the QE by April of this year, which means that the program will continue for few more months. Yet, this might need to change or to be adjusted by the ECB, as overshooting inflation is not desired especially with the current fragile growth rates and high unemployment rates in Europe.

In this case, we suspect that the ECB might be aggressive in its tapering, which should not be welcomed by the stock market, while the Euro might be the biggest winner of such policy.

This is only if inflation figures showed a dramatic increase on the coming weeks. Otherwise, the ECB will not be in a rush to taper faster than planned.

Today’s Figures

In France, the MoM CPI is expected to rise by the most since April of last year,  while YoY CPI might advance to 1.7% in February, which would be the highest reading since October of 2012.

In Italy, despite the fact that the estimates for the month of February are slower than in January. Yet, this would be the third month of consecutive gains. One we have not seen since Mid-2016.

EURUSD Above 1.07  Soon?

There are many factors involved here. Fundamentally, the economic releases and the possible tapering by the ECB is in favor of such scenario.

This is despite the fact that the ECB is looking to taper and to extend the current QE program. What matters the most is that the pace of the QE will be lower than before, which is considered as a positive factor for the Euro.

From a technical analysis point of view, the Euro has been trying to break above 1.06 since last week, but without any chance.

However, the momentum is still there, and another attempt to break above that resistance is still possible.

The Technical indicators are still positive and far away from being overbought, which keeps the chances for a potential rally. The 50 DAY MA stands at 1.0605, this is one of the reasons why the euro has been struggling to break above that resistance.

A catalyst is still needed, which might come from today’s economic releases. If so, the Euro might on the edge of another rally, which might extend toward 1.07 which represents its 100 DAY MA.

Another possible positive factor for the euro is the current bearish formation in the US Dollar Index, which completed the head and shoulders formation, which should accelerate the downside pressure toward 100.50’s maybe to test 100.0 barrier.

If so, the Euro should be trading above 1.07 in the coming days.

 

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