Today the Department of Statistics in Germany estimated that the CPI in January fell at the rate of -1.0% compared to the previous month. This comes after a flat reading in December, and forecasts were for a print around -0.8%. This inflation data is disappointing but the ECB has already announced QE to begin in March, so today’s inflation data should not have any impact on monetary policy.
(click to enlarge; source: forexfactory.com)
Indeed, the poor CPI data is NOT down the euro. This could be an early sign that the euro is ready for a pullback now that QE has been announced, and because this announcement was already priced in. That is not to saw the euro should be bullish, maybe neutral in the short/medium-term, while being bullish only in the near/short-term.
The bullish reaction in the EUR/USD is also a show of respect for the 1.13 handle. With price back above this handle, the short-term bullish outlook remains in play with the 1.1420, high on the week in sight. We should probably limit the current bullish outlook to the 1.1460 area, a previous support pivot that should also be reinforced by a falling trendline coming down from December’s high of 1.2570.
The EUR/GBP is also rallying after the CPI data:
After the ECB announced QE last week, EUR/GBP fell to 0.7405. It has been consolidating since with resistance around 0.7515. This week, we are seeing failed attempts to threaten the 0.7405. Today, price is rallying after the German CPI data, and is poised to test the 0.7515 high. A break above this week’s consolidation suggests a bullish outlook, but if we are to limit this outlook due to the strong prevailing downtrend, we should watch the 0.7595 area for resistance. This was a previous support pivot reinforced by a falling trendline. from mid-December.
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