EU CPI comes in much higher than expected
The main driver of currencies this week has been the Russian invasion into Ukraine. However, traders can’t overlook the most important piece of economic data when it comes to interest rates: inflation. After the stronger than expected harmonized readings for February CPI from Germany, Italy, Spain, and France, it’s not surprising that the headline print for the Eurozone Flash CPI was stronger than expected. The reading was 5.8% YoY vs 5.4% YoY expected and 5.1% YoY in January! This was a record high for Euro Zone CPI. Core CPI, which excludes energy, food, alcohol and tobacco, was up 2.7% YoY vs 2.5% YoY expected and 2.3% YoY in January.
It should be noted that the ECB targets 2% inflation and that February’s increase was before energy prices began to skyrocket because of the Russia/Ukraine conflict. Will continued high CPI cause the ECB to move up it’s timeline for decreasing asset purchases, or even allow the markets to look for a rate hike sooner than the end of year?
ECB’s de Guindos said earlier today that the invasion of Ukraine by Russia will not only have an impact on the economy in the Eurozone, but it will also have an impact on inflation. Therefore, it would seem, that de Guindos is expecting inflation to continue to rise. The next ECB interest rated decision meeting is next week
EUR/USD has been moving lower in a downward sloping channel since May 2021. Today, the pair reached its lowest level since May 2020, near 1.1059. Notice that the correlation coefficient between the EUR/USD and USD/RUB is -0.87. A correlation coefficient of -1.00 means that there is a perfectly negative correlation between the 2 assets and that they move In opposite directions 100% of the time. A reading below -0.80 is considered a strong negative correlation. Therefore, if USD/RUB continues to move higher, one can expect EUR/USD to continue to move lower.
Source: Tradingview, Stone X
On a 240- minute timeframe, price has moved convincingly below the January 28th lows and is threatening the 127.2% Fibonacci extension from those lows to the highs from February 10th, near 1.1020. Horizontal support from April 2020 also sits that that level. Below there is the bottom trendline of the long-term channel near 1.0950, then the 161.8% Fibonacci retracement from the recently mentioned timeframe near 1.0890.
Source: Tradingview, Stone X
However, EUR/USD is trading in a descending wedge. Expectations are that price will break out to the upside of the wedge. The target is a 100% retracement of the wedge. In addition, the RSI is diverging with price, an indication that EUR/USD may move higher. Resistance is at the previous support level of 1.1121, then the top trendline of the long-term channel (near the highs of the wedge) near 1.1250. Horizontal resistance sits just above there at 1.1280.
CPI out of the Eurozone was high and the Russia/Ukraine conflict should only make it increase due to soaring energy costs. Traders need to consider whether this will be enough for the ECB to make changes to their asset purchase plan when then meet next week.
The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Products and services available depend on your location and the entity holding your account. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.
FOREX.com is a registered FCM and RFED with the CFTC and member of the National Futures Association (NFA # 0339826). Forex trading involves significant risk of loss and is not suitable for all investors. Full Disclosures and Risk Warning. Increased leverage increases risk.
GAIN Capital Group LLC (dba FOREX.com) 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA. GAIN Capital Group LLC is a wholly-owned subsidiary of StoneX Group Inc.
© FOREX.COM 2026