Talking Points:

-German CPI MoM (Feb P) comes in at 0.5% vs. 0.6% est. and -0.6% prior

-German CPI YoY (Feb P) comes in at 1.2% vs. 1.3% est. and 1.3% prior

-Euro flat ahead of Durable Goods, Initial Jobless Claims, Yellen

German data disappointed on Thursday as inflation figures missed market expectations. Although employment data came in slightly better than economist’s estimates, Consumer Price Index data for the month of February indicated a MoM reading of 0.5% vs. 0.6% est. and -0.6% prior.

These developments put greater pressure on Mr. Draghi and the European Central Bank as we near the March rate decision. Although key officials remain upbeat about price levels, the data continues to tell a different story. Disinflation can only carry on for so long before the threats of deflation arise, especially when recent disinflation is being led by the Euro-Zone’s strongest nation. January’s -0.6% MoM print was highly disappointing, but sustained ICE Brent Crude prices 2%-3% above January prices may have helped edge out this month over month gain.

ECB officials have talked down speculation of negative deposit rates and other measures as of late, but we have seen this pattern play out before and the central bank eventually folded to the realities of incoming data. For instance in September and October we saw overly optimistic officials talk up prospects of EU growth, but disappointing inflation data for October forced their hand and led toan abrupt rate cut in November to 25bps from 50bps prior.

EUR/USD February 27, 2014 (5-Minute Chart)

German_CPI_Misses_Ahead_of_US_Durable_Goods_Yellen_body_Picture_1.png, German CPI Misses Ahead of US Durable Goods, Yellen

Source: FXCM Marketscope

The Euro is relatively flat following the release as market participants await key US Durable Goods Data, Initial Jobless Claims and Yellen’s testimony in front of the Senate starting at 15:00GMT.

Gregory Marks, DailyFX Research Team

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