Sticky Euro-Zone Core CPI to Encourage Larger EUR/USD Rebound
- Core Rate of Inflation to Hold Steady at Annualized 0.8% for Second Month.
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Trading the News: Euro-Zone Consumer Price Index (CPI)
Even though the Euro-Zone’s Consumer Price Index (CPI) is expected to hold flat in June, stickiness in the core rate of inflation may boost the appeal of the single-currency and fuel a larger rebound in EUR/USD as it curbs speculation for additional monetary support.
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Why Is This Event Important:
The European Central Bank (ECB) may continue to endorse a dovish outlook for monetary policy amid the disintegration in Europe, but President Mario Draghi and Co. may largely promote a wait-and-see approach at the next interest-rate decision on July 21 as the slew of non-standard measures work their way through the real economy.
Expectations: Bullish Argument/Scenario
|M3 Money Supply (YoY) (MAY)||4.8%||4.9%|
|Employment (QoQ) (1Q)||--||0.3%|
|Gross Domestic Product s.a. (YoY) (1Q F)||1.5%||1.7%|
The pickup in private-sector lending accompanied by signs of a stronger recovery may encourage stronger price growth in the monetary union, and a positive development may spur a bullish reaction in the Euro as market participants scale back bets for additional ECB support.
Risk: Bearish Argument/Scenario
|Business Climate Indicator (JUN)||0.26||0.22|
|Retail Sales (MoM) (APR)||0.4%||0.0%|
|Producer Price Index (YoY) (APR)||-4.1%||-4.4%|
Nevertheless, waning confidence paired with the slowdown in household spending may encourage European firms to offer discounted prices, and a soft inflation report may drag on the single-currency as it puts increased pressure on the ECB to further support the euro-area.
How To Trade This Event Risk(Video)
Bullish EUR Trade: CPI Report Exceeds Market Forecast
- Need green, five-minute candle following the report 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 cost; need at least 1:1 risk-to-reward.
- Move stop to entry on remaining position once initial target is met, set reasonable limit.
Bearish EUR Trade: Headline & Core Inflation Disappoint
- Need red, five-minute candle to favor a short EUR/USD trade.
- Implement same strategy as the bullish euro trade, just in the opposite direction.
Potential Price Targets For The Release
- EUR/USD stands at risk of giving back the advance from earlier this year as it fails to preserve the upward trend from December, with a closing price below the Fibonacci overlap around 1.0960 (23.6% retracement) to 1.0970 (38.2% retracement) raising the risk for a further decline as a head-and-shoulders formation appears to be taking shape.
- Key Resistance: 1.1760 (61.8% retracement) to 1.1810 (38.2% retracement)
- Key Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)
Check out the short-term technical levels that matter for EUR/USD heading into the report!
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Impact that the Euro-Zone CPI has had on EUR/USD during the last release
|Period||Data Released||Estimate||Actual||Pips Change||Pips Change|
|05/31/2016 9:00 GMT||-0.1%||-0.1%||+16||-5|
May 2016 Euro-Zone Consumer Price Index (CPI)
The Euro-Zone’s Consumer Price Index (CPI) slipped an annualized 0.1% in May following the 0.2% contraction the month prior, while the core rate of inflation advanced to 0.8% from 0.7% during the same period. The low-inflationary environment may encourage the European Central Bank (ECB) to preserve a dovish outlook for monetary policy, but the Governing Council may largely endorse a wait-and-see approach over the coming months as the non-standard measures work their way through the real economy. The initial market reaction was short-lived, with EUR/USD bouncing back from 1.1127, but the pair consolidated throughout the day to close at 1.1129.
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--- Written by David Song, Currency Analyst
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