The EURUSD closed last week slightly higher after its rapid descent from 1.3966, as traders weigh on what the European Central Bank (ECB) will do to combat the sluggish inflation within the eurozone. The ECB will has their rate statement and press conference this Thursday, and the euro has gone into the week limping. Traders will also be focusing on this week’s eurozone gross domestic product figures.
ECB President Mario Draghi said that the stagnant inflation near or below one percent will begin to cause a problem but it is not to be confused with deflation. Nevertheless, the central bank will have to address the situation and communicate effectively to market participants on the current inflation outlook.
Spanish released consumer price data last week that slide at the steepest annual pace on almost four-and-a-half years. German consumer prices also fell from .5 percent to .3 percent. This morning, Italy will release their prelim consumer price index (CPI) data, as well as the eurozone flash CPI estimate year-over-year. The last print was revised lower from .8 percent to .7 percent. Economists are expecting .6 percent, while I believe it will steepen to .5 percent. Analysts do not see action from the ECB this Thursday, but there is speculation further monetary easing will be needed going into the summer.
“I don’t think there’ll be enough for the ECB to deliver something next week. We do see this happening in June, when there will have been a cleaner May inflation figure and new ECB staff forecast,” said Citi economist Guillaume Menuet.
The EURUSD seen a bounce of the daily 72 EMA, making a low of 1.3704. However, the daily chart still has a 20/50 EMA bearish crossover in the works, and the euro will likely continue to trend lower against the greenback heading into the ECB’s decision. If the flash CPI data disappoints, expect the pair to retest support just above 1.3700. Conversely, if consumer prices see a tick or two higher, the EURUSD could test 1.3800 to 1.3822.
Price action still remains quite lower after breaking the recent uptrend, and resistance can be located at 1.3822 and 1.3900 before reentering the previous trend. Support can be located at 1.3700/10 and 1.3655/60.