EUR Bears At Risk on Sticky CPI, Outlook Remains Bearish Below 1.10
Dailyfx | Mar 31, 2015 03:17AM ET
- Euro-Zone Consumer Price Index (CPI) to Contract at Slower Pace.
- Core Inflation to Hold Steady at Annualized 07% for Second-Month.
Trading the News: Euro-Zone Consumer Price Index (CPI)
The Euro-Zone’s Consumer Price Index (CPI) may dampen the bearish sentiment surrounding the Euro and spur a short-term rebound in EUR/USD should the report highlight sticky price growth across the monetary union.
What’s Expected:
Why Is This Event Important:
Indeed, signs of stabilizing price pressures may encourage the European Central Bank (ECB) to soften its dovish outlook for monetary policy, and President Mario Draghi may talk down expectations for a further expansion in the easing cycle as the region gets on a more sustainable path.
Expectations: Bullish Argument/Scenario
|
Release |
Expected |
Actual |
|
Business Climate Indicator (MAR) |
0.18 |
0.23 |
|
Construction Output (MoM) (JAN) |
-- |
1.9% |
|
Retail Sales (MoM) (JAN) |
0.2% |
1.1% |
The pickup in business sentiment along with the expansion in private-sector consumption may generate sticky price growth in the euro-area, and a positive development may heighten the appeal of the single currency as market participants scale back bets for additional monetary support.
Risk: Bearish Argument/Scenario
|
Release |
Expected |
Actual |
|
M3 Money Supply (YoY) (FEB) |
4.3% |
4.0% |
|
Industrial Production s.a. (MoM) (JAN) |
0.2% |
-0.1% |
|
Producer Price Index (YoY) (JAN) |
-3.0% |
-3.4% |
However, falling input prices paired with the ongoing contraction in private-sector lending may encourage European firms to further discount consumer prices, and a dismal inflation print may trigger a short-term decline in the exchange rate as the ECB keeps the door open to implement more non-standard measures.
How To Trade This Event Risk(Video )
Get The News You Want
Bullish EUR Trade: Headline & Core Inflation Exceed Market Expectations
- Need green, five-minute candle following the release to consider a long EUR/USD trade
- If market reaction favors a bullish Euro trade, buy EUR/USD with two separate position
- Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward
- Move stop to entry on remaining position once initial target is hit, set reasonable limit
Bearish EUR Trade: Euro-Zone CPI Highlights Greater Threat for Deflation
- Need red, five-minute candle to favor a short EUR/USD trade
- Implement same setup as the bullish Euro trade, just in opposite direction
Potential Price Targets For The Release
h2 EUR/USD Daily Chart/h2Chart - Created Using FXCM Marketscope 2.0
- String of failed attempts to close above the 1.1000 region may highlight a near-term topping process in EUR/USD especially as the RSI struggles to retain the bullish momentum from earlier this month.
- Interim Resistance: 1.0970 (38.2% expansion) to 1.0990 (50% retracement)
- Interim Support: 1.0620 (61.8% expansion) to 1.0640 (38.2% expansion)
Impact that the Euro-Zone CPI report has had on EUR during the last release
|
Period |
Data Released |
Estimate |
Actual |
Pips Change (1 Hour post event ) |
Pips Change (End of Day post event) |
|
JAN 2015 |
03/02/2015 10:00 GMT |
-0.4% |
-0.3% |
+21 |
+31 |
January 2015 Euro-Zone Consumer Price Index (CPI)
The Euro-Zone’s Consumer Price Index (CPI) slipped at an annual pace of 0.3% in February after contracting 0.6% the month prior, while the core rate of inflation held steady at an annualized 0.6% for the second consecutive month. Despite the ongoing slack in the euro-area, the European Central Bank’s (ECB) quantitative easing (QE) program may continue to shore up the ailing economy as the President Mario Draghi adopts an improved outlook for the monetary union. The initial reaction in the Euro was short-lived as EUR/USD struggled to hold above the 1.1225 region, and the single currency struggled to hold its ground throughout the North American trade as the pair ended the day at 1.1181.
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