Inline HICP helps support EURUSD

EURUSD, H1

Eurozone HICP inflation was confirmed at 2.1% y/y, core at 1.1%. The latter was up from 0.9%, highlighting that not all of the uptick in July was due to base effects from higher energy prices. This despite the fact that the latter was a key reason for the rise in the overall rate above ECB’s 2% limit for price stability, with energy price inflation accelerating to 9.5% in July from 8.0% in the previous month. Services price inflation accelerated to 1.4% y/y from 1.3% y/y. The weaker EUR is adding to a rise in input prices and, with delivery times still remaining high as companies face capacity constraints, there is still room to pass on higher costs. So underlying inflation is likely to continue to nudge higher, while headline rates will likely get a further boost from a very dry summer that hit harvests across Europe and has already started to impact food price inflation.

EURUSD spiked on the data north of 1.1400 but could not hold this key psychological level with the daily pivot now acting as Support at 1.1375. The pair has recovered from Wednesday’s nadir under 1.1300 as worries over Turkey ease, at least in the short-term.