Inflation in the eurozone dropped more than expected in May. Consumer prices fell .2 percent to .5 percent, while analysts were expecting the rate to remain at .7 percent. The drop in the eurozone flash consumer price index (CPI) will put additional pressure on the European Central Bank (ECB) to react through additional stimulus measures, most likely to be announced during the next central bank meeting on June 5.
The ECB has been battling a ongoing drop in consumer prices and double-digit unemployment levels. The eurozone’s unemployment rate dropped a tenth-percent to 11.7, which has remained above 10 percent since August 2011. Very little change has been seen in the chronic unemployment situation, as eurozone countries contend for the highest unemployment rates in the world.
Micheal Martinez, an economist at Societe Generale, said “what seems highly likely is that the ECB will cut key rates and probably also inject further liquidity.” There is speculation that the central bank will cut its benchmark rate from record lows and cut the deposit rate from zero. ECB President Mario Draghi has said he would do “whatever it takes,” on several occasions, to help the 17 nation euro-bloc return to growth stability.
The euro remained steady after the set of economic reports, with price action slightly higher against the dollar. Speculation for more stimulus out of the ECB will likely give the euro some bullish momentum going into Thursday’s meeting. The EURUSD is also skidding along a three-month low.
The pair will look to test the 1H downtrend near 1.3631, which also corresponds with 200 EMA resistance. The RSI is ticking higher, while there is a +/- DMI bullish crossover in the works. A pop of bullish price action would push above resistance at 1.3615.
If price action can overtake the intraday downtrend, price action will test price action resistance at 1.3647. However, if the pair begins to break down, support will be found at 1.3600 before testing the low of 1.3585.