Euro-zone inflation rose to 0.7%, below 0.8% expected. Core inflation rose to 1% as expected. Euro-zone CPI was expected to rise to 0.8% in April from 0.5% in March. Core CPI was predicted to edge up from 0.7% to 1%. The figure is critical for the next ECB decision and the direction of the euro.
EUR/USD was waiting anxiously for the publication, dipping under 1.38 but not getting too far from the line. The pair drops to 1.3777 in what seems like a false break.
Analysis: Euro-zone inflation numbers worsens Draghi’s dilemma
EUR/USD is climbing above 1.38 now. The break under the lows of 1.3785 were not followed. Is this the initial dip before the big fall? Or a false break that will result in a move higher within the range? It seems like the latter.
Here is the chart:
The downside surprise is not such a big surprise because of the German number. A core figure of 1% is quite OK. The ECB will probably not be in a rush to act in May, but can move in June, and especially leave all options on the table for June, trying to curb the exchange rate.
Today’s Spanish HICP inflation showed a rise of 0.3% y/y as expected. More importantly, yesterday’s German inflation figures disappointed, rising less than expected. Year over year HICP inflation rose 1.1%, up from 0.9% in March.
Earlier, German retail sales came out below expectations while German unemployment dropped by 25K, better than expected.
1.3785 is immediate support, followed by 1.3740. Resistance awaits at 1.3830. For more, see the EUR to USD prediction.
