German state inflation drops sharply on oil

German state inflation drops sharply on oil

EURUSD, 60 min

German state inflation drops sharply on oil. Annual inflation in the six states that released February data this morning declined much more than expected, with headline rates in 5 of the states now in negative territory and NRW, the most populous state reporting an annual rate of 0.1% y/y, down from 0.6% y/y in the previous month. Base effects and lower oil prices are the main reason, with prices excluding household energy and petrol actually a full percentage point higher at 1.1%. Still, the data points to a weaker than expected German preliminary HICP reading, which like the French and Spanish numbers could well dip into negative territory. Again, officials already warned that this could happen, but nevertheless, the data will add to the arguments of the doves at the ECB and underpin speculation of far reaching action from Draghi in March.

Yesterday I wrote that we could see intraday weakness and then a rally with weakness at and above 1.1070. EURUSD declined first to 1.0985 and then rallied almost to 1.1070 before turning lower again. It pretty much moved according to the plan. The pair is now trading near the lower 60 min Bollinger Bands after moving lower rather fast from 1.1047 level. This suggests that we might see a rally higher from the levels near 23.6% Fibonacci level at 1.0998. However, I am expecting signs of weakness again around 1.1047 but caution the traders that these levels should be only traded if price action and you own analysis confirms the view.


Janne Muta

Chief Market Analyst

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