- Euro-zone inflation numbers for March will likely be subdued.
- German and Spanish figures point to the downside.
- They may add pressure on the common currency, which is already struggling.
The euro-zone publishes its preliminary estimates for inflation numbers for March 2019 on Monday, April 1st, at 9:00. Back in February, the headline Consumer Price Index (CPI) stood at 1.5% YoY while Core CPI was at 1.0%.
The headline number is off the highs around 2% as the fall in oil prices reached consumers. The European Central Bank has a headline inflation target of "2% or a bit below." The recent increase in prices has yet to propagate. However, core CPI remains stubbornly stuck at these low levels.
Early indications point to lower levels. Germany, the largest economy, reported a HICP level of 1.5% YoY in March, below 1.7% in February. HICP is the European-standard number. Spain, the fourth-largest economy, saw an increase from 1.1% to 1.3%, but below 1.5% expected.
We can expect similar numbers for March, or even lower if the German decline is reflected in most other countries. A drop in the headline number will not be worrying, as oil prices did not reach the previous highs.
Core CPI could tilt EUR/USD to the downside
The core number may provide more surprises. A drop of Core CPI below 1% would be worrying for the ECB, especially if the figure approaches the previous lows at 0.7%, something that seems unlikely now. EUR/USD could suffer on a slide to 0.9%. An increase to 1.1% or higher could help the euro.
EUR/USD is at a sensitive point. The euro-zone economies have materially slowed down, and prospects are not promising. The plunge in Markit's German Manufacturing PMI raises fears of a recession. The final manufacturing PMI data for Germany and the whole euro-zone will be published ahead of inflation data and will likely confirm the trend.
The European Central Bank already pushed back on potential rate hikes and announced a new funding scheme for the banks: TLTRO. ECB President Mario Draghi reiterated his stance that risks are tilted to the downside. At the same time, the US economy continues growing at an OK pace, and the greenback also enjoys safe-haven flows on fears of a global recession.
The trend is going against EUR/USD, and therefore a miss on Core CPI may have a more substantial effect on the pair than an upside surprise. The slow-moving nature of euro/dollar means it is not suffering from oversold conditions.
All in all, the direction of inflation and EUR/USD is down. A small but significant drop in Core CPI below 1% could trigger a downside move, more than any other outcome.
More: US GDP Quick Analysis: Goldilocks number for the USD and why it can gain most against the euro
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD fluctuates near 1.0700 after US data
EUR/USD stays in a consolidation phase at around 1.0700 in the American session on Wednesday. The data from the US showed a strong increase in Durable Goods Orders, supporting the USD and making it difficult for the pair to gain traction.
USD/JPY refreshes 34-year high, attacks 155.00 as intervention risks loom
USD/JPY is renewing a multi-decade high, closing in on 155.00. Traders turn cautious on heightened risks of Japan's FX intervention. Broad US Dollar rebound aids the upside in the major. US Durable Goods data are next on tap.
Gold stays in consolidation above $2,300
Gold finds it difficult to stage a rebound midweek following Monday's sharp decline but manages to hold above $2,300. The benchmark 10-year US Treasury bond yield stays in the green above 4.6% after US data, not allowing the pair to turn north.
Worldcoin looks set for comeback despite Nvidia’s 22% crash Premium
Worldcoin price is in a better position than last week's and shows signs of a potential comeback. This development occurs amid the sharp decline in the valuation of the popular GPU manufacturer Nvidia.
Three fundamentals for the week: US GDP, BoJ and the Fed's favorite inflation gauge stand out Premium
While it is hard to predict when geopolitical news erupts, the level of tension is lower – allowing for key data to have its say. This week's US figures are set to shape the Federal Reserve's decision next week – and the Bank of Japan may struggle to halt the Yen's deterioration.