EUR/USD: Trading the Euro zone CPI June 2013

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 Monday at 9:00 GMT.

Indicator Background

Analysts consider CPI one of the most important economic indicators, and the release of the  Eurozone Flash Estimate  CPI can affect the direction of EUR/USD. If inflation is considered too high or too low, the  ECB  could intervene by adjusting interest rates, which can have a major effect on the pair.

Recent  estimates for this indicator have  been fairly accurate, and the previous  reading of 1.4% matched the forecast.    The markets are expecting an increase in the July release, with an estimate of 1.6%. Will this month’s reading again be close to the estimate?

Sentiments and levels

The ECB showed confidence last month, but Mario Draghi is likely to become more worried, especially as the yields are rising and the debt crisis could make a comeback. The negative deposit rate and QE could be put on the table, and such talk has hurt the euro in the past. While the situation in Germany may be improving, the euro-zone economies are far from getting out of the woods.

In the US,  economic data looked strong, and  confidence in the US recovery is  increasing,  so the dollar will likely remain well bid, keeping pressure on the euro. Thus, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.3160, 1.31, 1.3050, 1.30, 1.2940, and 1.2890.

5 Scenarios

1. Within expectations:  1.3% to 1.9%. 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: 1.9% to 2.2%: A stronger reading than predicted could push the pair above one resistance line.
3. Well above expectations: Above 2.2%: An unexpectedly sharp rise in inflation could push EUR/USD upwards, with two or more lines of resistance at risk.
4. Below expectations: 0.9% to 1.2%: A lower than expected reading could pull the pair downwards, with one support level at risk.
5. Well below expectations: Below 0.9%: A reading at zero or in negative territory could result in  EUR/USD breaking two or more support levels.

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

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