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EURUSD Unfazed by Rising Inflation Amid Uncertainty Over Italian and Spanish Politics

EURUSD Unfazed by Rising Inflation Amid Uncertainty Over Italian and Spanish Politics

2018-05-31 09:44:00
Justin McQueen, Analyst
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Euro Analysis and Talking Points

  • EURUSD saw a muted reaction following the release of the better than expected Eurozone CPI report.
  • Focus remains on Italian and Spanish Politics

For a more in-depth analysis on the EUR, check out the Q2 Forecast for EUR

Eurozone Inflation boosted by higher energy prices

Euro-Area consumer price inflation rose 1.9% year-on-year from 1.2% for May, beating expectations of 1.6%, while underlying inflation rose 1.1% from 0.7% the previous month, printing above expectations of 1%. The headline reading had been driven by the 6.1% (Prev. 2.6%) surge in energy prices, while food prices edged up 2.6% from 2.4% in April.

EURUSD Unfazed by Rising Inflation Amid Uncertainty Over Italian and Spanish Politics

Source: Eurostat

Euro Unfazed by Inflation Amid Political Uncertainty

Given the boost in German and French inflation, in which both nations saw headline inflation above the ECB’s 2% goal. Markets had been gearing up for a better than expected Eurozone inflation print, in turn, EURUSD saw a muted reaction upon release. Focus for Euro traders is on the political developments in Spain and Italy, with the latter the dominant factor for financial markets. As it stands, both the 5 Star and League are attempting to form a governing coalition, avoiding a snap-election, which has provided a lift for the Euro as Italian bond yields plunge with the 2yr back below 1% as recent polls have suggested greater support for populist parties, most notably the League. In Spain, a no-confidence motion over PM Rajoy is currently being debated in which a successful no-confidence vote could see snap-elections called in Spain, providing an additional headache for the ECB and potentially keeping the Euro subdued.

EURUSD PRICE CHART 1: EURUSD 1-HOUR TIMEFRAME (Jan 2017-May 2018

EURUSD Unfazed by Rising Inflation Amid Uncertainty Over Italian and Spanish Politics

According to IG Client Positioning, data shows that 52.5% of traders are net-long, to find out more click here

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX

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