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Euro (EUR) Battles Record Low Euro-Zone Inflation Expectations

Euro (EUR) Battles Record Low Euro-Zone Inflation Expectations

Nick Cawley, Strategist

EURUSD Price, Chart and Analysis:

  • Euro-Zone inflation expectations continue to make fresh lows.
  • EURUSD price being kept afloat by a weak US dollar.

Q2 2019 EUR Forecast and USD Top Trading Opportunities

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The latest market indicator of Euro-Zone inflation expectations – the 5-yr/5-yr inflation-linked swap rate – today printed a new all-time low at 1.165%. The indicator measures inflation expectation over a five-year period starting five years from now. This will be a major headache for the ECB whose remit is to maintain inflation rates below, but close to, 2% over the medium-term.

Euro (EUR) Battles Record Low Euro-Zone Inflation Expectations

This reading is closely monitored by the ECB and the recent fall in expectations will only increase pressure on the central bank to loosen monetary conditions further – rate cuts, more quantitative easing – to boost price pressures in the single-block. The ECB halted the QE 2 at the end of 2018, apart from coupon and repayment reinvestments, and the central bank is likely in the months ahead to admit that more QE is necessary. The Euro-Zone benchmark (10-yr German Bund) currently trades at -0.265%, while the 20-year Bund offers a paltry 12.5 basis points of yield, highlighting the view that interest rates are going to stay very low for a long time.

EURUSD Price Looking Shaky - Lower for Longer?

EURUSD remains around 1.5 cents away from making a fresh two-year low if it breaks the May 23 nadir at 1.1107. The pair’s upside is currently being halted by the 200-day moving average which has held firm over the last week with the level broken but not closed above. EURUSD downside is being tempered by a weak US dollar with markets fully expecting at least two 0.25% interest rate cuts this year, cutting the attractiveness of the US dollar.

EURUSD Price Outlook Cloudy – ECB’s Rehn Talks Rate Cuts and More QE

EURUSD Daily Price Chart (September 2018 – June 14, 2019)

Euro (EUR) Battles Record Low Euro-Zone Inflation Expectations

Retail traders are 45.8% net-long EURUSD according to the latest IG Client Sentiment Data, a bullish contrarian indicator. However recent daily and weekly positional changes give us a mixed trading bias.

We run several Trader Sentiment Webinars every week explaining how to use IG client sentiment data and positioning when looking at a trade set-up. Access the DailyFX Webinar Calendar to get all the times and links for a wide range of webinars.

Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.

What is your view on EURUSD – bullish or bearish? You can let us know via the form at the end of this piece or you can contact the author at nicholas.cawley@ig.comor via Twitter @nickcawley1.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.