EUR/USD: Trading the Eurozone CPI Jun 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 Tuesday at 9:00 GMT.

Update: Euro-zone inflation falls to 0.5%, core 0.7% – EUR/USD bounces

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 improved in April, posting a gain of 0.7%. This was just short of the estimate of 0.8%. The markets are expecting another gain of 0.7% in the upcoming release.

Sentiments and levels

All eyes are on the ECB’s policy meeting later this week, as the Mario Draghi and his colleagues seem likely to take some monetary action. A negative deposit rate from a major central bank is uncharted territory and can have a strong negative impact on the euro, even if does not come as a surprise. In addition, Draghi is likely to maintain the dovish stance and leave the door open for more action, aiming for a lower exchange rate to help the sputtering Eurozone economy. Together with not-so-cheap European bonds, we could see outflows from the euro-area.

In the US, last week’s unemployment claims were solid, and the markets have moderate expectations for this week’s NFP. The top tier US data may impact the US dollar against most currencies in either direction, but is probably going to leave the most of the stage to Draghi’s heavy hand. Thus, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.3740, 1.37, 1.3650, 1.3515, 1.3450, and 1.34.

5 Scenarios

  1. Within expectations: 0.4% to 1.0%. 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: 1.1% to 1.4%: A stronger reading than predicted could push the pair above one resistance line.
  3. Well above expectations: Above 1.4%: An unexpectedly sharp rise in inflation could push EUR/USD upwards, breaking a second resistance line.
  4. Below expectations: 0.0% to 0.3%: 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 0.0%: If the indicator drops into negative territory, EUR/USD could break below a second support level.

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

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About Author

Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.

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