eur fundamentals

Euro Holding Above Key Support at 1.3100 - Declines May Be in Store

Friday, 10 April 2009 17:28:52 GMT  |  Terri Belkas, Currency Strategist

The euro fell further against the US dollar and Japanese yen on Friday, with EUR/USD now holding above key support at 1.3100 and EUR/JPY holding above the 20 SMA at 131.47. There will be additional downside risks for the currency next week, as Eurostat inflation estimates for the Euro-zone have shown that CPI may have fallen to a 0.6 percent annualized pace during March, which would mark the lowest since recordkeeping began in 1991. More importantly, though, the data would highlight that inflation remains well below the European Central Bank’s 2.0 percent inflation target. If Eurostat confirms this at 5:00 ET, or revises the results to the downside, the euro could pull back, especially since the markets are pricing in a small chance of a 25 basis point cut by the ECB on May 7. On the other hand, if CPI is higher than anticipated, the currency could gain as the markets will speculate that the central bank may pause in their efforts to make monetary policy more accommodative. Ultimately, there seems to be more evidence that the ECB will reduce rates at least one more time next month after the final reading of Q4 GDP was unexpectedly revised to a new record low of -1.6 percent, ECB Governing Council member George Provopoulos said that the bank’s benchmark rate could be cut by at least another 25 basis points, and as the ECB’s monthly bulletin highlighted their concerns about growth both domestically and abroad, as well as the potential for inflation figures to fall negative mid-year.

Related Article: Euro/US Dollar Monthly Forecast


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