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European Flash Estimate CPI, which is released each month, 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 an  unexpected reading from European CPI Flash Estimate could have  a strong impact on the direction of EUR/USD.

The CPI reading has dropped slightly in the past two releases, as low levels of inflation in the Eurozone continue to concern the ECB. The previous release came in at 0.7%, short of the estimate of 0.9%. The estimate for the January reading is unchanged, at 0.7%.

Sentiments and levels

After ignoring  weak data  day after day, things might change this week, with the all important inflation numbers. The strong euro and the fragile recovery will likely exacerbate low inflation levels in Germany and the Eurozone, and these could trigger  a negative deposit rate in March. The ECB and the euro could certainly come under pressure.

In the US,  despite  all the weakness  we’ve seen  from recent key events,  the Fed is determined to continue tapering.  The  markets are expecting  Fed chief Yellen to reiterate this  when she testifies before the Senate on Thursday.  Technically, the attempt to break out of range to the upside had little success and uptrend support is in jeopardy now. So, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.3895, 1.3830, 1.3773, 1.3650, 1.3515 and 1.34.

5 Scenarios

  1. Within expectations: 0.5% to 0.9%. 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: 1.0% to 1.3%: A stronger reading than predicted could push the pair above one resistance line.
  3. Well above expectations: Above 1.3%: An unexpectedly sharp rise in  the reading  could push EUR/USD upwards, with two or more lines of resistance at risk.
  4. Below expectations: 0.1% to 0.4%: A lower than expected reading could pull the pair downwards, with one support level at risk.
  5. Well below expectations: Below 0.1%: A reading at zero or in negative territory could result in the pair breaking two or more support levels.

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

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