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Thursday, February 25, 2021

EUR/USD falls after weak German and US consumer inflation data

  • The EUR/USD pair declined today as investors reacted to German and US inflation data.
  • US consumer prices increased to 1.4% while the core CPI to 1.7%.
  • In Germany, the headline CPI while the harmonised CPI fell by 0.2%.

The EUR/USD price is slightly lower as the market digests the German and US consumer price index (CPI) data. It is trading at 1.1781, which is slightly below Friday’s high of 1.1831.

EUR/USD declines after US and German CPI data

German deflation continues

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Consumer prices in Germany continued to decline in September, according to Destatis. The data shoeed that consumer prices fell by 0.2% on a month-on-month and year-on-year basis. Similarly, the harmonised index of consumer prices fell by -0.4% on a MoM and YoY basis. This slowdown was in line with what analysts were expecting but lower than the previous month’s decline. It was also the lowest reading since January 2015.

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According to Destatis, the low rate of inflation is partly because of a temporary value-added relief implemented by the government as part of the Covid-19 stimulus. The government slashed the VAT from 19% to 17%. In theory, the VAT cut led to a 1.6% decrease in consumer prices.

In total, goods prices fell by 1.7% year-on-year, mostly because of a 7.1% decrease of energy prices. On the other hand, the price of services rose by 1% mostly because of a 1.4% increase in rent.

Meanwhile, data from ZEW Institute showed some improvement in the country’s economic situation. In September, the economic expectations rose by 5.9 points to a high of 77.4. That was the highest level since the Covid-19 pandemic started. The current conditions index rose from -66.2 to -59.5. However, the economic sentiment index fell from 77.4 to 56.1 in October.

US reports mixed CPI data

The EUR/USD price also reacted to the US CPI data. According to the Bureau of Labour Statistics, the headline consumer price index rose by 0.2% in September leading to a 1.4% increase on a year-on-year basis. At the same time, the core CPI, which excludes the volatile food and energy prices, rose by 0.2% and by 1.7% on a YoY basis.

According to the Bureau, the biggest contributors to price increases were used cars and trucks. The food index was unchanged while the energy index rose by 0.8%. The report said:

“The index for food away from home continued to rise, increasing 0.6 percent in September. The index for limited-service meals rose 0.9 percent in September, the largest increase in the history of the index, which dates to 1997. Meanwhile, the index for full-service meals rose 0.3 percent in September.”

Meanwhile, the EUR/USD price also reacted to a relatively positive report by the IMF. The fund increased its global economic forecast to -4.4% from the previous estimate of a 4.9% decline. The fund attributed this revision to the better performance of the Chinese economy. Earlier today, the country’s statistics office showed that exports and imports continued to soar in September.

EUR/USD technical outlook

EUR/USD tecjnical

The EUR/USD price is relatively lower today on the mixed data from the US and China. It is trading at 1.1780. On the daily chart, this price is above the 15-day and 25-day exponential moving averages. It is also slightly above the ascending green trendline. It has also formed a bearish flag pattern that is shown in pink. Therefore, in the next few sessions, I suspect that the price will remain at the current range. However, in the immediate near term, I expect that the pair will break out lower.

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