Euro Analysis and Talking Points
- EURUSD saw a muted reaction following the release of the German CPI report.
- Euro continues to be pressured by the stronger USD, Italian elections may dent outlook.
German Inflation Provides Encouragement for Euro Bulls
German consumer price inflation stood at 1.6% year-on-year for April, which was slightly higher than expectations of 1.5%, while CPI month-on-month decelerated to 0% in April from 0.4% the previous month, printing above expectations of -0.1%. The better-than-expected inflation figures were primarily driven by the lift in prices for energy, rising by 1.2% from 0.5%, while food prices rose by 3.4% for April, up from 2.9% in March.
Despite the higher than expected German inflation prints which should provide some encouragement for Euro bulls, EURUSD had been unfazed by the report, currently trading at session lows of 1.2075. The pair had broken through 1.2100 earlier today after weak inflation figures from Italy and Portugal, while German regional CPI had been somewhat mixed, alongside softer German retail sales data. Aside from the data, politics continues to provide a cause of concern with Italy potentially heading for another General Election in June and as such may dent the outlook in the near-term for the Euro.
In Germany’s most populous state, North Rhine-Westphalia, annual inflation slowed to 1.5% from 1.6 % in March. However, inflation stood at 1.7% and 1.5% in Bavaria and Hesse respectively, while the Saxony state saw an uptick to 1.6% from 1.5%.
Italy’s national consumer price index rose by 0.5% in April, down from 0.8% in March, which wasmainly blamed on the reversal of prices of regulated energy products and services related to transport. Portuguese Inflation also saw a sizeable drop to 0.4% from 0.7%, which in turn, increases the downside risks for Thursday’s preliminary inflation report from the Eurozone.
PRICE CHART 1: EURUSD 1-HOUR TIME FRAME (APRIL 4-30th)
Delay in ECB Exit Strategy
Overall the combination of German CPI with the soft inflation in the peripheral nations could potentially lead to a weaker flash reading in inflation from the Eurozone on Thursday. There may be rising expectations that the ECB could potentially delay their announcement in regard to their exit strategy from June (ECB staff projections are also released) to July or potentially further down the line amid the cooling off in Euro-Area growth, while inflation has still yet shown a convincing upward trend. A delay in the announcement past July will likely instigate a fresh wave of Euro selling, most notably against the USD as investors increase bets that the Fed may hike 3 more time this year.
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— Written by Justin McQueen, Market Analyst
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