Eurozone headline CPI rose to 0.3 % from 0.0% y/y, in line with the median forecast. More interestingly core inflation (excluding food and energy) jumped to 0.9% y/y from 0.6% y/y while analyst consensus expected only a 0.1% rise to 0.7%. This is the first time in six months that the headline rate is in positive territory and the move back above zero should finally silence any deflation concerns. These were exaggerated in the first place, as the decline in headline numbers was mainly due to base effects from lower energy prices. They are now falling out of the equation and together with the weaker EUR are driving up inflation again. The ECB’s very accommodative policy stance is adding to price pressures in countries such as Germany and the quicker than anticipated rebound could see the ECB lifting its inflation projections at this week’s council meeting.
This supported the EURUSD and it moved above the pivotal high from Friday. With today’s high being at 1.1056 EURUSD is now trading close to my target area of 1.1062 to 1.1083. Now that last week’s candle was a reversal candle and price has been makinig higher lows the likelyhood of price collapsing from this resistance is smaller. However, the pair is getting close to overbought levels when measured with 4h Stochastics and together with the resistance levels being near the risk of correction increases. The nearest 4h support level is at 1.0994 while 23.6% Fibonacci level (measured from last week’s low to today’s high) is very close at 1.1000 suggesting the region has some importance. However, the 50% Fibonacci level at 1.0937 is much more interesting in terms of potential entry level for long trades. For more intraday levels see the above 4h chart. The 50 day SMA is at 1.0968 and almost coincides with 50 period SMA in 4h chart and the 38.2% Fibonacci retracement level at 1.0965. If price retraces to these levels, look for price action based confirmation before considering long trades.
Janne Muta
Chief Market Analyst
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About Janne Muta, HotForex’s Chief Market Analyst
Janne Muta is a seasoned industry professional with over 16 years experience in the global markets. Originally from Finland, Janne has worked for institutions in both Helsinki and London as an institutional fund manager, global market analyst and FX educator.
Traders and fund managers from around the world have benefited greatly from Janne’s technical analysis methods. The indicators and price action based trading models he has developed, have, after rigorous testing, proven to be invaluable in identifying high probability trades.
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