EUR/USD Down Despite Sticky Core Eurozone CPI

The Eurozone CPI YoY is the highlight of the day and it came mixed today, with the headline CPI number ticking lower to 2.5% as expected, while core CPI remained unchanged. Nonetheless, the Euro is not benefiting from it, as EUR/USD continues lower, trying to break below 1.07.

Headline CPI was anticipated to slightly decrease to 2.5% in June, down from 2.6% in May, which it did, while the Core CPI YoY was projected to tick lower to 2.8% from the previous 2.9%, but stayed unchanged at 2.9%. Despite these adjustments, this report was not expected to significantly impact the ECB’s plans, as the bank aims to review the data throughout the summer before making decisions on potential interest rate reductions in September and that’s what happened today.

However, if inflation decreases more rapidly or the economy worsens considerably over the summer, the market might start pricing in additional rate cuts before the year’s end. Before the release, the market had factored in 46 basis points of easing by the end of the year, with a 61% probability of no change at the July meeting and an 83% chance of a rate cut in September. Following the inflation report, these odds have shifted.

EUR/USD Chart H4 – Finding Resistance at the 200 SMA

Following a decline after the European Parliamentary elections two weeks ago, the EUR/USD pair found support around the 1.0700 level. Yesterday, it opened with a bullish gap higher as right-wing parties made gains in France and Macron’s alliance slipped to third place. The EUR/USD initially moved higher but encountered resistance at the 200 SMA (purple). It then retraced lower following Germany’s disappointing CPI inflation readings, which served as a precursor to today’s Eurozone June CPI report.

Eurozone CPI Inflation Report for June

• Eurozone June preliminary CPI: +2.5% vs +2.5% y/y expected (Prior: +2.6%)
• Core CPI: +2.9% vs +2.8% y/y expected (Prior: +2.9%)
• ECB’s Lane downplays the report
• Headline inflation eases as expected, but core inflation remains high
• Services inflation remains high at 4.1%

EUR/USD Live Chart