Euro-zone CPI Estimate Accelerates Unexpectedly; Euro Rallies Exposing 1.4280
Consumer prices in the 17-nation euro-zone defied expectations with a rapid acceleration to 2.6% year-on-year compared to the 2.4% reading seen in February and amid forecasts of an unchanged 2.4% reading. The release shows consumer prices rising at the fastest pace since October 2008 and remains well above the ECB’s 2% target, notching up the fourth consecutive month above the target level. Without any official Eurostat breakdown until April 15th we can only speculate that oil and energy imports continued to drive inflation higher in the euro-region.
The ECB is set to meet (April 7th) before the release of the Eurostat breakdown and will have to take these numbers on face value, that inflationary pressures continue to rise in the EMU. The ECB has all but confirmed that it will raise rates at its April 7th meeting but pressure is now mounting for a larger than 25bp hike to contain inflation, especially after this latest estimate. The ECB wants to take action in an attempt to fend off higher energy prices feeding through to wage demands and other second-round inflationary effects.
The euro continued its northern journey against the beleaguered greenback on the back of the higher than expected release as the market increases its bets that the ECB will raise rates in April. The early rally this morning, propelled higher by the release, opens highs from November 2010 at 1.4280, a critical level to take out if gains are to be extended further. March highs at 1.4250 have to be overcome first to pave the way for a test of these November highs. However, before jumping too quickly into long positions this market has been in an intense uptrend for some time now and an ECB hike is likely priced into the market; failure to test November highs in the near-term could see some bulls throw in the towel.
Written by Jonathan Granby, DailyFX Research Team
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.