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Jignesh Davda

Euro CPI rises 1% in Year to August

Annual inflation in the euro area held steady at 1% in the year to August, in line with analyst expectations. On a monthly basis, CPI rose 0.1% which was a tick lower than expected. Core CPI rose 0.9% annually and 0.2% monthly, both meeting the analyst estimate.

Last week the European Central Bank introduced a new stimulus package in hopes of fighting subdued inflation and slowing growth. Annual CPI in the euro area topped out at 2.2% last November and has steadily fallen lower since.

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The Federal Reserve meets later today and it is expected they ease policy as well. Analysts are looking for a quarter basis point rate cut which would mark the second cut this year.

US policymakers previously justified the need for easing on slower growth and the impacts of an ongoing trade war. However, recent communication from the White House suggests progress is being made in talks between China and the United States. The markets certainly show optimism as the S&P 500 is on the verge of breaking to record highs while Bonds sold off sharply last week.


Technical Analysis

EUR/USD showed strength yesterday as it rallied above a significant resistance confluence found at 1.1040. The pair closed the day near recent highs to wipe out losses from Monday. The technical outlook at this point signals potential for further upside, although a directional bias will be clear following the Fed meeting.

EURUSD Daily Chart

To the upside, a major resistance area to watch is in around yesterday’s high. There is a declining trendline which originates from the late June high. A break would signal that a broader recovery is taking place and that the pair made a double bottom in the first half of the month.

While below the level, the main area to watch for is the psychological 1.1000 handle. If the pair falls below it on a sustained basis following the Fed meeting, it would signal that the broader downtrend has resumed.

Bottom Line

  • The Fed meeting later today will clarify the near-term direction for EUR/USD.
  • A 12-week down trendline is in play, currently residing around 1.1080. A break would suggest a double bottom is in play.
  • A sustained break of 1.1000 reinforces a bearish bias.
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