EU CPI surprises. Hawks come out!

The reading was the highest in nearly 10 years!


Earlier today, the EU released its Flash CPI data for August.  The YoY print was 3% vs 2.7% expected and 2.2% in July.  This is the highest reading in nearly 10 years!  Just as with much of the rest of the developed world, rising inflation stemmed from strong demand and supply chain issues as economies reopen post-Covid.  A rise in energy prices was the main culprit for the increase in inflation.    The Core CPI was 1.6% vs 1.5% expected, more than double the 0.7% in July. 

What is inflation?

Will hawks be looking to change the pace of bond bonding under the Pandemic Emergency Purchase Program (PEPP) come the ECB meeting next week?  Last week,  VP de Guindos suggested that forecasts could be revised upward.  He also added that fiscal and monetary policy should be normalized as well, as the economy recovers. Today, after the CPI print, both Holzman and Knot commented that PEPP could be slowed in Q4.  Knot went as far as saying, “Euro Area inflation may justify end to ECB crisis mode.” However, Chief Economist Lane said that there was no hurry to remove favorable financing conditions and should wait to adjust PEPP.  ECB’s Villeroy also added this week that although the ECB should take account of a recent improvement in financing conditions, they can adjust bond purchases as needed each month under PEPP because they are not tied into buying any specific amount per month.  PEPP is currently set to expire in March 2022.

Your guide to the ECB

EUR/USD had broken out of a descending wedge on August 24th and began moving higher.  However today, the pair ran into resistance on the daily timeframe at a longer-term upward sloping trendline and horizontal resistance.  Although the day isn’t over yet. If today’s candlestick closed near 1.1800, it would form a shooting start, an indication that the pair may be ready to continue its move lower.

Source: Tradingview, StoneX

On a 240-minute timeframe, the EUR/USD had been moving higher in an orderly fashion once it broke out of the descending triangle.  In addition to the resistance mentioned above, the pair also hit the top of the upward sloping channel.  First resistance is near todays highs, the top trendline of the channel, and horizontal resistance, near 1.1850.  Above there, price can run to the next resistance level at 1.1908.  Support is at the bottom trendline of the channel near 1.1780.  Below there is horizontal support near 1.1725 and again near 1.1700.

Source: Tradingview, StoneX

The EU CPI was much higher for August than it was in July.  Already today, the hawks are coming out as both Holzman and Knot have suggested pulling back the amount purchases under PEPP.  But the big question is “Will they have influence over the rest of the ECB members, as well as Lagarde?”

Learn more about forex trading opportunities.

Disclaimer: 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. Before deciding to trade forex and commodity futures, 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 or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account