This is very much an absolutely crucial week for future movements on the euro, with the impending release of several inflation data on the Eurozone, as well as in the strongest economy, Germany. Although some data has already been published, many relevant statistics will only be released on Thursday and Friday.
Based on the data released so far this week, we can already observe two positive results:
1) German IFO business climate, expected to be about 110.6, was in fact 111.3.
2) European CPI surpassed the expected 0.7%, with a 0.8% print.
These outcomes represent a very positive response to widespread fears of deflation within the Eurozone. The ouro actually moved in the opposite direction of what was expected. After the data’s publication, the Euro reversed from upside to downside, as traders preferred to go short, as is shown by the chart below.
In the coming days, traders should pay attention to the following data which will certainly influence the euro:
1) German Consumer Price Index (YoY)(FEB P) on Thursday.
2) Euro-Zone Unemployment and Unemployment Change on Friday.
3) Euro-Zone Consumer Price Index (YoY) on Friday.
The first piece of data, Germany CPI (YoY), is expected to see a rise from its 1.3% , to 1.58% with a consensus at 1.3%.
It’s a very important piece of data when you consider that the ECB has always shown a tendency to take decisions when German inflation numbers turn bearish, pushing the likelihood of a deflationary scenario in the Eurozone. This was the case with the rate cut in November 2013, and Mario Draghi’s conference in July 2012.
Furthermore, the unemployment rate for the Eurozone is expected to remain stable at, or around the 12% mark.
Finally CPI for the Eurozone is expected to fall to 0.51% from 0.8%. If this outlook is confirmed, it shows a great signal of deflation and may push the ECB to use other tools to avoid deflation in Europe.
To conclude, it would be advisable to focus on German CPI numbers in order to clarify the scenario. Only a very low number for German CPI – far below expectations – will be enough to force the ECB to strongly consider changing their policy, but it remains extremely unlikely.