EURO : Inflation Remains far Below

(Fri, 11 Sept 2020). Thursday’s ECB policy meeting and press conference saw the central bank marginally upgrade growth expectations and row back on any meaningful attempt to dampen the value of the Euro. President Christine Lagarde said that while the exchange rate was discussed, the ECB would only ‘monitor carefully’ any further moves. Expectations going into the meeting were for the central bank to take a stronger approach to any further Euro appreciation after August’s core inflation fell to 0.4% y/y from 1.2% while the annual headline rate turned negative in August, -0.2% from +0.4% in July. A stronger Euro keeps downward pressure on Eurozone inflation as imports become cheaper and exports more expensive.

Several ECB members are speaking today and their commentary should be closely followed. ECB chief economist Philip Lane has already hit the newswires warning that there is ‘no room for complacency’ as ‘inflation remains far below aim’.

EUR/USD touched and bounced back of the 50-day simple moving average on Wednesday, the first time this indicator has been threatened since late-May. The recent series of higher highs looks set to be broken, unless the pair trade above 1.2012, and any dovish ECB commentary or US dollar strength could see the 50-dma, currently at 1.1772, challenged again.







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