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German Inflation Hits a Five Month Low, But Euro Continues Higher

German Inflation Hits a Five Month Low, But Euro Continues Higher

2013-09-27 13:47:00
Benjamin Spier, Technical Strategist
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Talking Points:

  • German inflation hits a five month low
  • Below target inflation allows ECB to remain accommodative
  • EUR/USD continues higher despite release

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German annual inflation set a new five month low in September, but the decline in consumer prices failed to stop the Euro’s move higher.

The consumer price index rose 1.4% from September 2012, less than expectations for the annual inflation to remain unchanged from August’s 1.5% rate. The German CPI did not change on a monthly basis, according to a preliminary estimate by the Federal Statistical Office.

Germany is the biggest economy in the Euro-zone, where inflation for the whole region was reported at 1.3% in August and well below the ECB’s target 2.0% inflation rate. In September, ECB President Draghi repeated that he expects interest rates to remain at current or lower levels, and the below-target inflation rate allows the central bank to maintain accommodative policy without worries of driving prices higher at a faster than desired rate. Therefore, declining inflation should be Euro negative.

However, the Euro did not react significantly to today’s German inflation release. EUR/USD continues to trade around 1.3550 in Forex markets at the time of this writing, following an earlier rise to a new weekly high. A seven month high recently set at 1.3568 may provide resistance, and support may come in by the key 1.3500 level.

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EUR/USD Daily: September 27, 2013

German_Inflation_Hits_a_Five_Month_Low_But_Euro_Continues_Higher_body_Picture_1.png, German Inflation Hits a Five Month Low, But Euro Continues Higher

Chart created by Benjamin Spier using Marketscope 2.0

-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to instructor@dailyfx.com .

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