Euro-zone inflation fell to 0.5% in May, lower than officially expected, and to the lowest level (already seen in March). Official expectations were for a year over year rise of 0.7% in prices in the preliminary release for May, the same as in April. However, the weak print of only 0.6% from Germany certainly lowered the expectations. Core inflation rose back up to 1% in April and a slide was expected here as well. The core number now fell to 0.7%, which matches the lowest levels.
EUR/USD traded in a very narrow range just above 1.36 in the hours before the event, reflecting high tension. Just before the release, it dropped under 1.36. After an extension of the drop, the pair is somewhat recovering×¥
Better news comes from the unemployment rate, which drops to 11.7%. The pair dropped to 1.3585, a new cycle low, but from there is bounced.
Mario Draghi said that the governing council feels comfortable to act in June if forecasts show a danger of low inflation for too long. The decision depends on forecasts for the medium term rather than short term figures, but it is important to remember that the surprising drop in inflation in October triggered a rate cut in November.
You are welcome to join a webinar towards the critical ECB decision. The webinar is held today at 14:00 GMT, and registration is free here.
Low support awaits at 1.3560. Resistance is at 1.3615, followed by 1.3650. For more, see the euro dollar prediction.
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