EUR/USD: Trading the Eurozone CPI Aug 2014

Eurozone CPI Flash Estimate, released each month,  is the primary gauge of consumer inflation. A reading which is higher than the market forecast is bullish for the euro.

Update:  EUR/USD: Trading the Eurozone CPI Flash Estimate

Here are all the details, and 5 possible outcomes for EUR/USD.

Published on Friday at 9:00 GMT.

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 inflation indicators remain at low levels, as underscored by CPI. The index  posted a gain of 0.4% last month, down from 0.5% in the past two releases. This was  just short of the estimate of 0.5%.  Another soft reading is expected in July, with the estimate standing at 0.3%. Will the index surprise the markets and beat the forecast?

Sentiments and levels

The divergence of monetary stance between the  dovish ECB and the  already  not-too-dovish Fed  is becoming more reflected in the lower value of EUR/USD, as  Mario Draghi explained to us so well. Speculation is increasing that the ECB could resort to some QE stimulus to prop up the economy. Could we see a correction before the next move down? Perhaps, but this could be only temporary. A reminder of  weak inflation in the euro-zone  and of strong US growth could certainly shape the next fall.  Thus, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.3295, 1.3250, 1.3175, 1.31, 1.30 and 1.2877.

5 Scenarios

1. Within expectations: 0.1% to 0.5%. 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: 0.6% to 0.9%: A stronger reading than predicted could push the pair above one resistance line.
3. Well above expectations: Above 0.9%: An unexpectedly sharp rise in inflation could push EUR/USD past a second resistance line.
4. Below expectations: -0.3% to 0.0%: A  negative or zero reading could pull the pair downwards, with one support level at risk.
5. Well below expectations: Below -0.3%: In this scenario, EUR/USD could break below a second  support level.

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

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