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Big fall in euro-zone inflation adds pressure for a rate

According to the CPI Flash Estimate, euro-zone headline CPI fell from 1.7% to 1.2%, significantly below the 1.6% estimation and far off the 2% inflation target.

This figure, together with another rise in unemployment, adds pressure for the ECB to act and cut the interest rate, even though this move would have more of a symbolic impact than a real impact on borrowing.

The market is likely to price in a rate cut. So, if the ECB refrains from action, the euro is likely to leap. In order to really lower the value of the euro and help the European economies, the ECB could use the “nuclear option” and set a negative deposit rate.

See the ECB preview for 4 scenarios for this event.

The unemployment rate in the euro-zone rose from 12% to 12.1% as expected. Spain’s unemployment rate stands at 27.2%. Earlier, Italy reported a better than expected unemployment rate of 11.5%, contrary to 11.7% that was expected. Germany’s unemployment change rose by 4K, a bit more than 2K that was expected.

EUR/USD is defying this information and rising within a very limited range.

[do action=”tradingviews” pair=”EURUSD” interval=”60″/]

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

Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.