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Euro Unresponsive to a Decline in Inflation

Euro Unresponsive to a Decline in Inflation

Benjamin Spier, Technical Strategist
  • Euro-zone inflation falls to a four month low
  • Unemployment remains at an all time high
  • Euro unresponsive despite scrutiny of ECB policy

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A decline of the Euro-zone annual inflation to a 4-month low in August, and only slightly above a 3.5 year low, failed to move the Euro, despite uncertain monetary policy.

The Eurostat’s initial estimate for the consumer price index was 1.3% higher than August 2012, thereby lower than expectations for 1.4% annual inflation and down from 1.6% in July. Euro-zone economic confidence rose to 95.2 in August, beating expectations for 93.8 and up from 92.5 in July.

Additionally, the Euro-zone unemployment rate remained at an all-time high of 12.1% for the fifth consecutive month in July, as was expected.

The lack of a Euro reaction to the lower than expected inflation was surprising given the recent focus on ECB policy. A divergence in comments between President Draghi and the Bundesbank has left many speculating if the ECB will sooner cut interest rates again or raise them. Therefore, surprisingly low inflation should have made a stronger case for accommodative policy and possibly driven the Euro lower.

However, the Euro continues to trade slightly below 1.3250 against the US Dollar at the time of this writing. EUR/USD may see support by a downward trend line from February, currently at 1.3240.

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EURUSD Daily: August 30, 2013

Euro_Unresponsive_to_a_Decline_in_Inflation_body_eurusd_daily_chart.png, Euro Unresponsive to a Decline in Inflation

Chart created by Benjamin Spier using Marketscope 2.0

-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to instructor@dailyfx.com .

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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