– Euro-Zone Consumer Price Index (CPI) to Slow to 0.3%- Lowest Since October 2009
– Core Inflation to Hold Steady at 0.8% for Third Consecutive Month
For more updates, sign up for David’s e-mail distribution list.
Trading the News: Euro-Zone Consumer Price Index (CPI)
Another downside in the Euro-Zone’s Consumer Price Index (CPI) may heighten the bearish sentiment surrounding the EUR/USD as it puts increased pressure on the European Central Bank (ECB) to further embark on its easing cycle.
What’s Expected:
Click Here for the DailyFX Calendar
Why Is This Event Important:
ECB President Mario Draghi may show a greater willingness to implement more non-standard measures at the September 4th meeting should the CPI print show a larger threat for deflation, and the EUR/USD may continue to weaken throughout the second-half of 2014 as interest rate expectations deteriorate.
Expectations: Bearish Argument/Scenario
Release
Expected
Actual
Markit Purchasing Manager Index Composite (AUG P)
53.4
52.8
Gross Domestic Product s.a. (QoQ) (2Q A)
0.1%
0.0%
Retail Sales (MoM) (JUN)
0.5%
0.4%
The slowdown in business outputs paired with the renewed weakness in private sector consumption may drag on price growth, and the growing risk for deflation may push the ECB to adopt more emergency measures in an effort to achieve its one and only mandate to deliver price stability.
Risk: Bullish Argument/Scenario
Release
Expected
Actual
Business Climate Indicator (AUG)
0.10
0.16
M3 Money Supply (YoY) (JUL)
1.5%
1.8%
Producer Price Index (MoM) (JUN)
0.0%
0.1%
The pickup in producer prices along with the expansion in the money supply may limit the downside risk for inflation, and a better-than-expected CPI print may encourage a more meaningful rebound in the EUR/USD as it gives the ECB greater scope to retain its current approach for monetary policy.
Join DailyFX on Demand for Real-Time SSI Updates!
How To Trade This Event Risk(Video)
Bearish EUR Trade: Euro-Zone CPI Slips to 0.3% or Lower
Need red, five-minute candle following the release to consider a short EUR/USD trade
If market reaction favors selling Euro, short EUR/USD with two separate position
Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward
Move stop to entry on remaining position once initial target is hit, set reasonable limit
Bullish EUR Trade: Headline Reading for Inflation Exceeds Market Forecast
Need green, five-minute candle to favor a long EUR/USD trade
Implement same setup as the bearish Euro trade, just in opposite direction
Read More:
Price & Time: Cue the “Most Hated Rally in History” Talk
EUR/USD Attempting to Break Downtrend from Mid-August – Key Levels
Potential Price Targets For The Release
Chart – Created Using FXCM Marketscope 2.0
Remains at Risk for Further Losses as Long as RSI Holds in Oversold Territory
Interim Resistance: 1.3510 (38.2% expansion) to 1.3520 (38.2% retracement)
Interim Support: 1.3140 (38.2% retracement) to 1.3150 Pivot
Impact that the Euro-Zone CPI report has had on EUR during the last release
Period
Data Released
Estimate
Actual
Pips Change
(1 Hour post event )
Pips Change
(End of Day post event)
JUL 2014
07/31/2014 9:00 GMT
0.4%
0.5%
-4
-4
July 2014 Euro-Zone Consumer Price Index
The Euro-Zone Consumer Price Index (CPI) narrowed to an annualized rate of 0.4% from 0.5% the month prior, hitting a 5-year low. The print was also below the average estimate of 0.5%. Even though the core rate of inflation held steady at 0.8% for the second-month, price growth remains well below the ECB’s 2.0% target. Nevertheless, the ECB argued that lackluster print was attributed to volatile components, such as food and energy. However, there is no evidence that the inflation would pick up with the target soon, since ECB just announced a rate cut in June. The pair EUR/USD declined slowly after the release of the Eurozone CPI, but came back soon after and ended the day at 1.3386.
— Written by David Song, Currency Analyst and Shuyang Ren
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
To be added to David’s e-mail distribution list, please follow this link.
Trade Alongsidethe DailyFX Team on DailyFX on Demand
Looking to use the DailyFX Trade Signals LIVE? Check out Mirror Trader.
New to FX? Watch this Video
Join us to discuss the outlook for the major currencies on the DailyFXForums
Source: Daily fx
