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Sticky Euro-Zone Core CPI to Encourage Larger EUR/USD Rebound

Sticky Euro-Zone Core CPI to Encourage Larger EUR/USD Rebound

2016-06-30 05:00:00
David Song, Strategist
Share:

- Euro-Zone Consumer Price Index (CPI) to Halt Four Straight Months of Negative Price Growth.

- 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.

What’s Expected:

DailyFX Calendar

Click Here for the DailyFX Calendar

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

Release

Expected

Actual

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

Release

Expected

Actual

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

EURUSD Daily

EUR/USD Daily Chart
  • 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!

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 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)

MAY

2016

05/31/2016 9:00 GMT

-0.1%

-0.1%

+16

-5

May 2016 Euro-Zone Consumer Price Index (CPI)

EUR/USD Chart

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.

Get our top trading opportunities of 2016 HERE

Read More:

S&P 500: Months of ’Chop’ Wiped Away in One Fell Swoop

GBPUSD, EURUSD & Gold Technical Outlook in a Post Brexit World

NZD/CAD Longs at Risk on Approach of Key Resistance at 9200

Brexit Aftermath Analysis Directory

--- Written by David Song, Currency Analyst

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

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