Euro Plunges Lower as German Inflation May Raise Flags for the ECB

Talking Points:

• German inflation misses expectations for April
• ECB warns of possible action if prices threaten recovery
• EUR/USD plunges 45 pips on the CPI release

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The Euro plunged in Forex markets on Tuesday morning, as German annual inflation was reported below expectations for April and signaled higher chances of ECB action. Consumer prices rose 1.3% from April 2013, which was a three-month high for inflation, but still disappointed expectations for 1.4% annual rise in consumer prices. German annual inflation was reported at a three-year low in March at 1.0%.

Inflation has remained an important factor for the European Central Bank, as annual price changes remain below the ECB’s 2% target rate. Euro-zone wide inflation was reported at a four-year low of 0.5% in March, and inflation for April will be released tomorrow. ECB President Draghi warned recently that the central bank is open to broad based purchases of assets if consumer prices threaten the recovery.

That’s why lower than expected inflation in the Euro-zone’s biggest economy caused a sell-off in the Euro.

EUR/USD 1-Minute: April 29, 2014

The Euro fell over 45 pips and to a new 3-day low against the US Dollar following the release. EUR/USD may next find support by the 2-week low at 1.3784.

Senior Technical Strategist Jamie Saettele said that failed rallies in EUR/USD trading may warn of something sinister to the downside. See Jamie’s daily EUR/USD chart below and read more here.

Chart created by Baruch Spier and Jamie Saettele using Marketscope 2.0. Add DailyFX Support/Resistance to your charts at FXCM Apps.

-- Written by Baruch Spier, DailyFX Research. Feedback can be sent to [email protected] .