EUR/USD: Trading the Eurozone CPI Oct 2014

Eurozone CPI Flash Estimate is an inflation index which measures the change in the price of goods and services charged to consumers. A reading which is higher than the market forecast is bullish for the euro.

Here are all the details, and 5 possible outcomes for EUR/USD.

Published on Friday at 10:00 GMT.

Indicator Background

Analysts consider CPI one of the most important economic indicators, and the release of  Eurozone CPI can have a major impact on the direction of EUR/USD.

Eurozone CPI has been steady, posting two straight readings of 0.3%, both of which matched expectations.  The markets are not expecting much change, with an estimate of 0.4%.

Sentiments and levels

The  Eurozone economies remains beset by  very low inflation, high unemployment and a central bank that is ready to do more and more. The German locomotive has  run into trouble as well, notably the contraction in Q2. The influx of data will likely serve as a stark reminder, weighing on the euro.

In the US, the positive data and hawkish FOMC statement point to a deepening recovery which is good news for the US dollar. The solid Q3 GDP release  is  another  reminder that the US is going in the right direction. So, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.2750, 1.27, 1.2660, 1.2570, 1.25, and 1.2445.

5 Scenarios

1. Within expectations: 0.2% to 0.6%. In this scenario, EUR/USD could show some slight fluctuation, but it is likely to remain within range, without breaking any levels.
2. Above expectations: 0.7% to 1.0%: A stronger reading than predicted could push the pair above one resistance line.
3. Well above expectations: Above 1.1%: An unexpectedly sharp rise in inflation could push EUR/USD upwards, breaking a second resistance line.
4. Below expectations: -0.2% to 0.1%: A  reading at or close to the zero level  could pull the pair downwards, with one support level at risk.
5. Well below expectations: Below -0.2%: In this scenario,  EUR/USD could break below a second  support level.

For more on the euro, see the EUR/USD forecast.

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