The European economic data has been impressive in the last several months with manufacturing, industrial production and services posting some very good figures. The pace of economic expansion has been picking up, which means that the EU economy is heating up further.

Of course, a big part of this has to be credited to the European Central Bank (ECB) and their monetary stimulus plan, as well as to the improvement in the global economy. The inflation has picked up nicely compared to a year ago, so evidentally the Euro has rallied in the last three months.

In the last few days we have seen quite a reversal from above 1.09. The inflation numbers we saw last week were a bit disappointing. They might be the reason for this swift reverse.

My take is that the market got scared that the ECB might continue with QE if inflation doesn´t hold up. The core inflation has always been the main number for me and it´s lagging. Draghi has often mentioned core inflation, so we know that´s what he is focusing on.

Inflation numbers disappointed last week and the Euro has fallen about 3 cents since. Today´s European manufacturing data can´t stop this decline either. Is this the end of the 3-month uptrend? Are we going to resume the larger downtrend and reach parity soon?

I don´t think so. The Eurozone economy is doing well, political risks are diminishing and the ECB wants to tighten their monetary policy.

We still have to wait for this month´s inflation numbers though, because if they turn out to be awful, then panic kicks in again and no one knows where we might end up.

We can say that the sentiment for this forex pair is bearish right now, so I´ll be waiting for a retrace up to open a sell forex signal.