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Euro Forecast: Inflation Data May Prompt Fall in EUR/USD Price

Euro Forecast: Inflation Data May Prompt Fall in EUR/USD Price

Martin Essex, MSTA,

Fundamental Euro Forecast: Bearish

  • After last week’s strong Eurozone PMI and German Ifo data, Euro traders this coming week should focus on inflation numbers from Germany Tuesday and then the Eurozone as a whole Wednesday.
  • The problem is that the European Central Bank will not be raising interest rates in the foreseeable future so even if the numbers show that the strong economic recovery is boosting inflation that’s unlikely to lift the Euro.
  • EUR/USD is therefore more likely to weaken than strengthen even if the numbers exceed expectations.

Euro price at risk from Eurozone inflation data

The focus for Euro traders this coming week will likely be on inflation numbers due from Germany Tuesday and the Eurozone as a whole the next day. These statistics will follow strong signals last week that the region’s economy is now recovering strongly from the slump prompted by the coronavirus pandemic.

In particular, June purchasing managers’ indexes from Germany and then from the entire Eurozone all beat analysts’ expectations, as did the Ifo business climate index for Germany and Ifo’s expectations index. Under normal circumstances, such numbers would lift forecasts for Eurozone interest rates and therefore EUR/USD but these are not normal times.

The European Central Bank has been crystal clear that it sees any increase in inflation resulting from the economic recovery as temporary and that it will not, therefore, tighten monetary policy in response. That, in turn, means that this coming week’s inflation data could weaken the Euro if they come in lower than expected and leave it unscathed even if they come in higher.

EUR/USD Price Chart, Daily Timeframe (March 25 – June 24, 2021)

Source: IG (You can click on it for a larger image)

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The consensus among the analysts polled by the news agencies is that German data Tuesday will show a preliminary fall in the June inflation rate to 2.3% year/year from May’s 2.5%. Then, the year/year flash number for the Eurozone as a whole, due Wednesday, will show a dip to 1.9% from the previous 2.0%. The core number is expected to be 0.9%, down from 1.0%.

Find out here how inflation data affect currency prices

Unemployment statisticsalso due this week will likely have little impact and nor will Eurozone sentiment data, final PMIs or German retail sales numbers due Friday ahead of the far more important US non-farm payrolls figure the same day.

EUR/USD Bearish
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 56% -25% -2%
Weekly 12% -4% 2%
What does it mean for price action?
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--- Written by Martin Essex, Analyst

Feel free to contact me on Twitter @MartinSEssex

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