Euro Analysis and Talking Points
- EURUSD finds support on German state inflation data
- However, easing inflation in most populous states poses downside risks.
For a more in-depth analysis on EUR, check out the Q3 Forecast for EUR
German State Inflation Mostly Exceeds Expectations
The Euro has found a boost from German data as State inflation readings have mostly exceeded expectations of the mainland figure (0.4% m/m, 2.1% y/y) and prior readings. Consequently, this bodes well for the headline reading due to be released at 1200GMT.
However, downside risks remain as the most populous regions have in fact seen inflation ease from the prior month. North Whine-Westphalia, which is the most populous state saw annual inflation ease to 2%, while the second and third most populous states, Bavaria and Baden Wuerttemberg saw inflation ease to 2.2%. The notable drag on inflation had been due to the fall in clothing prices, while package holiday inflation had picked up.
Regional CPI Figures
North Rhine Westphalia: 0.3% (Prev. 0.1%) M/M, 2.0% (Prev. 2.1%) Y/Y
Baden-Wurttemberg: 0.2% (Prev. 0.2%) M/M, 2.2% (Prev. 2.4%) Y/Y
Bavaria: 0.2% (Prev. 0.2%) M/M, 2.2% (Prev. 2.4%) Y/Y
Hesse: 0.4% (Prev. 0%) M/M, 1.8% (Prev. 1.8%) Y/Y
Brandenburg: 0.4% (Prev.0%) M/M, 2.2% (Prev. 2.2%) Y/Y
Saxony: 0.4% (Prev. 0.1%) M/M, 2.2% (Prev. 2.1%)
ECB Still on Course to Wind Down QE Purchases
Overall, the data thus far continues to suggest that the ECB will remain cautious when winding down their bond buying program by the end of the year. Although, headline inflation is tracking around the ECB’s target, core inflation has failed to show an sustainable upward trajectory, which in turn led to the ECB reiterating the phrase that rates will remain at current levels until at least through the summer of 2019.
EURUSD PRICE CHART 1: Daily-Time Frame (April-July 2018)
EURUSD continues to trade within the 1.1850-1.1510 range with no signs of a break-out in the near term. Initial upside this morning has already been rejected by the 20DMA at 1.1690, while the descending trendline from the ECB June decision should keep price action capped. On the downside, the 1.16 handle will continue to act as support, with the base in EURUSD looking set at 1.1500-1.1510.
--- Written by Justin McQueen, Market Analyst
To contact Justin, email him at Justin.mcqueen@ig.com
Follow Justin on Twitter @JMcQueenFX
