Search ForexCrunch

It could be worse: while headline CPI dropped to only 0.3% in the euro-zone, core inflation is rising off the bottom with +0.9%, better than 0.8% expected. The unemployment rate in the euro-zone stands at 11.5%.

EUR/USD is now moving towards 1.32 as  expectations for immediate action next week have faded away. Nevertheless, as deflationary pressures still exist and as bond yields remain low, markets are expecting  further falls in prices and if Draghi doesn’t act, a stronger euro will push prices even lower.

The euro-zone flash estimate of inflation was expected to drop to a new bottom of 0.3% y/y in August from 0.4% in July, while core CPI carried expectations for  remaining unchanged at 0.8%. This is critical for the ECB decision next week.

EUR/USD was trading around 1.3180 towards the publication.

Here is the preview: trading the EZ CPI with EUR/USD

The euro  began the week with a Sunday gap and never managed to close it. Draghi made heavy hints that QE is coming and also acknowledged that falling prices are not only a result of temporary factors.

However, later in the week some sources said that a decision now depends on inflation data, making this even more important.

Analysis:  Deflation expectations are well anchored – will Draghi deliver?