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Sticky Euro-Zone Core CPI to Fuel EUR/USD Gains

Sticky Euro-Zone Core CPI to Fuel EUR/USD Gains

2016-03-31 05:00:00
David Song, Strategist
Share:

- Euro-Zone’s Consumer Price Index (CPI) to Contract for Second-Month Albeit at Slower Pace.

- Core Rate of Inflation to Increase to Annualized 0.9%- First Uptick Since January.

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Trading the News: Euro-Zone Consumer Price Index (CPI)

Even though the Euro-Zone’s Consumer Price Index (CPI) is anticipated to contract an annualized 0.1% in March, a pickup in the core rate of inflation may boost the appeal of the single-currency and spark fresh monthly highs in EUR/USD as it limit’s the European Central Bank’s (ECB) scope to implement additional monetary support.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

Signs of sticky price growth may encourage the ECB to endorse a wait-and-see approach at April 21 interest rate decision, and President Mario Draghi may adopt a less-dovish tone over the coming month as the series of non-standard measures work their way through the real economy.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Trade Balance s.a. (JAN)

19.5B

21.2B

Employment (QoQ) (4Q)

--

0.3%

Retail Sales (MoM) (JAN)

0.1%

0.4%

Improved demand from home and abroad may push European firms to boost consumer prices, and a marked pickup in core inflation may spur a bullish reaction in the single-currency as market participants scale back bets for more ECB easing.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Economic Confidence (MAR)

103.8

103.0

Consumer Confidence (MAR A)

-8.3

-9.7

Producer Price Index (YoY) (JAN)

-2.9%

-2.9%

However, waning confidence accompanied by subdued factor-gate prices may drag on the CPI, and a softer-than-expected reading may generate a near-term pullback in EUR/USD as it fuels bets for a more accommodative policy stance.

How To Trade This Event Risk(Video)

Bullish EUR Trade: Core Rate of Inflation Edges Higher

  • Need to see green, five-minute candle following the release to consider a long trade on EURUSD.
  • If market reaction favors a bearish Euro trade, buy EURUSD 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 Report Misses Market Expectations

  • Need red, five-minute candle to favor a short EURUSD trade.
  • Implement same setup as the bullish Euro trade, just in the opposite direction.

Potential Price Targets For The Release

EURUSD Daily

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Even though the diverging paths for monetary policy fosters a long-term bearish outlook for EUR/USD, the may work its way back towards the top of the 2015 range as it breaks out of the descending channel formation from earlier this month.
  • Interim Resistance: 1.1510 (50% retracement) to 1.1520 (61.8% expansion)
  • Interim Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.

Impact that the Euro-Zone CPI report has had on EUR/USD during the last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

FEB A

2016

02/29/2016 09:00 GMT

0.9%

0.7%

-13

-43

February 2016 Euro-Zone Consumer Price Index (CPI)

EUR/USD Chart

The Euro-Zone’s Consumer Price Index (CPI) missed market expectations in February as the headline reading unexpectedly showed an annualized 0.2% contract, while the core rate of inflation narrowed to 0.7% from 1.0% during the same period amid forecasts for a 0.9% print. Easing price pressures in the euro-area may encourage the European Central Bank (ECB) to further support the monetary union as the Governing Council struggles to achieve its one and only mandate for price stability. The softer-than-expected reading for inflation dragged on the single-currency, with EUR/USD slipping below the 1.0900 handle to end the day at 1.0871.

Read More:

GBP/USD - Brexit Odds Repricing

EUR/USD – The Abyss Hopefully Leads to Clarity

COT-Small Trader Net Long Position in AUD is Largest Since July 2014

USD/JPY-More at the 110.66 Low Than You Might Think

Get our top trading opportunities of 2016 HERE

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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