EUR/USD Remained Calm After Eurozone CPI Release

Talking Points:

• CPI Estimate (YoY)(DEC) Actual -0.2% vs -0.1% Surveyed and 0.3% Prior, missing expectations
• EUR/USD largely unchanged as traders anxious of higher volatility to come, US Fed minutes later today
• Uncertainty linger on the pair’s outlook, various risk factors will be influential on ECB’s QE decision

The Eurozone’s December CPI Estimate (YoY) revealed to have declined by 0.2%, marginally worse than the anticipated decrease of 0.1% and down from the prior year’s meagre growth of 0.3%. On the other hand, December’s Core CPI (YoY), a reading which exclude food and energy prices, paint a slightly more positive picture for the Eurozone economies. Taking into account of the persistent decline of oil prices in the past half year, the Eurozone’s underlying inflation level may have improved ever so slightly, as core CPI increased from an expected 0.7% to actual reading of 0.8%. Action on the EUR/USD pair remained subdued following the release, with the price of Euro hovering at levels just above the 9-year low breached earlier today at 1.1842 to the Greenback.

Earlier today saw the release of upbeat December German Unemployment figures, with unemployment count of the largest Eurozone economy declining by 27000 within the month compared to the mere 5000 expected. The rosy labour market performance of Germany could not help lift negativity from the Euro as the market is anxious of various risk factors that could shake the Eurozone economies. This include the impending Greek snap election that could lead to its exit from the Eurozone plus the abandonment of the single currency, as well a wider implication on the structure of the ECB’s debt purchase program. In addition, the unrelenting decline in oil prices has been flowing through to the broader consumer price index and adding further deflationary pressure on prices in the Eurozone countries. The ECB will have a tough decision to make at its meeting on January 22 regarding plans of its Quantitative Easing programme, and traders should be wary of the additional volatility that will ensue in the upcoming days. Closer at hand is the release of US December FOMC meeting minutes at 19:00 GMT, which may offer clues from the US Federal Reserve on whether worries of Global economic deterioration will change up expectations for the US rate hike in the near future.

Looking ahead, as EUR/USD has been treading on historic lows of almost a decade, any catalyst such as indications of a delay to ECB’s QE plans would likely induce a short term bounce for the pair. Likewise, possible signs of US Dollar weakness will also lift the pair up, as short positions will be eager to take some profit whilst traders waiting on the sidelines gauge for a timely re-entry. According to the DailyFX Speculative Sentiment Index, the ratio of long to short positions in the EUR/USD currently stands at 1.60 as 61% of FXCM retail traders are long.

EUR/USD (5 Min Chart) - Created using Marketscope 2.0

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Written by George Meng, any comments, suggestions, or feedback please email [email protected]