EURO AREA CORE FLASH KEYPOINTS
Euro Area Core Inflation Retreives as YoY Print Accelerates EUR/USD Lower Your Prices
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The core inflation rate in the Euro Area retreated slightly in April coming in at 5.6% in April down from last month’s print of 5.7%. Core CPI, which excludes the prices of food, energy, alcohol, and tobacco, went down by 0.1%, following a trend that started in June 20,22 when core CPI stood at 3.7%. The core CPI remains uncomfortably elevated and despite signs that consumer spending is slowing and conditions are tightening, inflation remains stubborn.
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In April 2023 the YoY inflation rate increased to 7.0 percent from 6.9 percent in March, a 13-month low. The cost of energy rose faster than March, by 5.2% instead of 5.1%. On the other hand, inflation slowed for food, alcohol & tobacco to 13.6% vs 15.5% and non-energy industrial goods 6.2% vs 6.6%. Monthly, consumer prices rose by 0.7%. It was the third consecutive month of increases.
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The ECB Bank Lending Survey and a Look Ahead
The ECB’s job is a tough one given the economic backdrop of the various countries in the Euro area. European Central Bank (ECB) policymakers have adopted a largely hawkish rhetoric of late ahead of this week’s meeting.
Earlier this morning we also had the ECB Bank Lending Survey which strengthened the belief of a 25bps hike at Thursday’s meeting. Eurozone Banks have reported that companies are requesting less credit. This is a result of the lending survey, which showed a significant tightening in banks’ credit standards. Consumers and households were also affected by this, as rejection rates rose and demand for home loan decreased as consumers remain worried about the economy and confidence.
The Bank Lending Survey gave at least some indication that the effects of the rate hikes are beginning to spread through the economy. The slight rise in YoY inflation could continue to influence ECB policymakers.
MARKET REACTION
EURUSD Daily Chart
Source: TradingView by Zain Vawda
EURUSD initially dropped 15 pip before recovering and trading relatively flat after the release. Early European trade has seen the pair hovering at the lows of its recent range around 1.0950. The Euro was under some selling pressure as a result of this morning’s Bank Lending Survey. The range between 1.1050 and 1.0950 could continue to hold up until tomorrow’s FOMC meeting.
The EURUSD long-term picture is still a little unclear, as both the technicals (and fundamentals) seem to be in conflict. Technically, the daily chart shows that there has been a break in the ascending channel. Further downside is preferred. Even though the setup is appealing, the important fundamental data that will be released this week could have a big impact on where EURUSD moves next. The Federal Reserve and ECB may provide clarity on their respective rate hike paths. Recent dovish bets against the Fed are being moderated.
The following are the key levels to keep an eye on:
Resistance Levels
Support Levels:
Written by Zain Vaida for DailyFX.com
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