EUR USD Analysis: Weak CPI, Dovish ECB?

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EUR USD Analysis: Weak CPI, Dovish ECB?

For today’s EUR USD analysis, we’ll take a look at the recent CPI (consumer price index) release from the euro zone and figure out how it can affect euro movement in the coming days. The region printed a weaker than expected inflation report and showed a mere 0.5% uptick in price levels instead of the estimated 0.6% increase. In addition, the previous month’s report was downgraded from 0.8% to 0.7%, also reflecting weak inflationary pressures in the economy.

Bear in mind that one of the main concerns in the euro zone economy these days is deflation. Policymakers are worried that price levels will keep weakening and eventually start to decline, thereby undoing most of the progress made when it comes to economic recovery.

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EUR USD Analysis and Fundamentals

This should set the tone for the upcoming ECB (European Central Bank) monetary policy announcement. Last week, a few ECB officials hinted at the likelihood of further easing in order to combat the euro’s gains and the prospect of deflation in the economy. One policymaker suggested the implementation of negative deposit rates and caused a massive selloff for euro pairs.

Technical EUR USD analysis shows that the pair could be on the start of a downtrend this week. Recall that the pair already broke below a short-term rising trend line on the 1-hour time frame and formed a head and shoulders chart pattern, which is a classic reversal signal. The pair has fallen below the 1.3800 area of interest, which has held as support in the past.

The ECB is set to make its monetary policy decision later on this week and confirmation that ECB head Draghi is also looking into further stimulus might mean more losses for EUR/USD. EUR USD analysis of sentiment shows that most traders are bearish on the pair, based on data from CFTC.

To contact the reporter of the story: James Brennan at james@forexminute.com