Euro Area Inflation Declines for the First Time Since July 2021

EUR CPI Key Points:

The CPI and Forex: How CPI Data Affects Currency Prices

Euro Area annual inflation comes in at 10% for November, down from 10.6% in October to post its first decline since July 2021. Energy continues to have the highest annual rate but declined from 41.5% in October to 34.9% in November. Food, alcohol and tobacco prices rose to an annual rate of 13.6% compared to 13.1% in October. Core inflation data which excludes energy, food, alcohol and tobacco was steady and matched estimates with a print of 5%.

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The data coupled with softer readings from Germany, Spain and Belgium will no doubt give the European Central Bank a lot to ponder heading toward its December 15 meeting. Having hiked interest rates 75bp at its previous two meetings the question for markets is whether they are ready to slow the pace down to 50bp (Markets currently pricing in 54bp). Recent comments from ECB President Christine Lagarde would indicate that a slowdown may not be on the cards as Lagarde stated that inflation has yet to peak. ECB policymaker Isabel Schnabel meanwhile recently stated it may be too early to slow down the pace of rate hikes which makes Decembers meeting all the more intriguing.

Later today we have Fed Chair Jerome Powell speaking which is likely to give EUR/USD some medium-term direction. Expectations are that Powell may come out hawkish given his recent comments which bodes well for the dollar and could see EUR/USD make its way lower with parity becoming a possibility once more.

Market reaction

EURUSD 15M Chart

Source: TradingView, prepared by Zain Vawda

Initial reaction saw a 25pip spike higher for EUR/USD. The data on its own is unlikely to see EUR/USD break out of its weekly range with the speech by Fed Chair Powell later today likely to have a bigger impact.

On the larger timeframes, EUR/USD is set to face pressure the longer it stays below the 1.0500 area. Dollar dynamics continue to drive the pair and US data as well as the speech by Fed Chair Powell later today should give the pair some direction. A clean break and candle close above the 1.0500 area is needed for the bullish momentum to continue while a break below the 1.0350 area could open up a test of the 1.0200 support area before a test of parity may come into play.

Key Intraday Levels Worth Watching:

Support Areas

Resistance Areas

— Written by Zain Vawda for DailyFX.com

Contact and follow Zain on Twitter: @zvawda