Euro Vulnerable on Soft Inflation Data Ahead of ECB Rate Decision

The Euro may decline if soft Eurozone CPI data hints the ECB has increasingly ample room to ease monetary policy ahead of this week’s rate decision.

Talking Points

• Euro at Risk if Soft CPI Print Prompts Dovish ECB Expectations
• Disappointing US ISM Data May Weigh on Risk Appetite, Boost Yen
• Major Currencies Little Changed vs. US Dollar in Quiet Asian Trade

A preliminary estimate of the March Eurozone CPI print headlines the economic calendar in European hours. Expectations call for the year-on-year inflation rate to slow to 1.6 percent, the lowest since June 2010. This hints the ECB is being offered increasingly ample room to stimulate growth without worrying about runaway price growth.

This may put downward pressure on the Euro ahead of this week’s interest rate decision. While the central bank is widely expected to maintain the policy mix unchanged, a soft CPI print in the context of lingering recession may prompt the markets to look for a dovish shift in rhetoric foreshadowing added easing on the horizon in the months ahead.

Later in the day, the spotlight turns to US ISM Non-Manufacturing Composite reading. Economists expect service-sector activity growth to slow a bit in March after setting a 12-month high in February. A Citigroup index tracking the performance of US economic data relative to expectations has snapped an uptrend in place since early February, suggesting news-flow may be taking on a dour tone once again A disappointing outcome similar to the factory-sector ISM print earlier in the week may weigh on risk appetite, encouraging an unwinding of carry trades and boosting the Japanese Yen.

Major currencies are trading little-changed against the US Dollar in late Asian trade absent a clear-cut catalyst for directional momentum. While official and HSBC versions of March’s Chinese Services PMI numbers offered conflicting cues, both metrics printed closely in line with trend averages, thereby offering little impetus to dislodge established expectations and spark volatility.

Want to see economic data releases directly on your charts? Try this App.

Asia Session:

Euro Session:

Critical Levels:

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

To be added to Ilya's e-mail distribution list, please CLICK HERE