Forex News

Eurozone flash Harmonized Index of Consumer Prices (HICP) rises at an annualized pace of 2% in December, as expected, slower than 2.1% in November. On a monthly basis, inflationary pressures grew by 0.2% after deflating 0.3% in the previous month.

The Core HICP in the old continent, which excludes volatile components such as food, energy, alcohol, and tobacco, grew at a slower pace of 2.3% year-on-year (YoY) against estimates and the prior reading of 2.4%. Month-on-month, the core HICP rose by 0.3%.

Market reaction

EUR/USD has attracted bids after the data release and has risen to near 1.1690.

This section was published at 08:40 GMT as a preview of the Eurozone preliminary HICP data for December.

The Eurozone Prelim HICP Overview

Eurostat will publish the preliminary Eurozone Harmonized Index of Consumer Prices (HICP) data for December later on Wednesday at 10:00 GMT.

Eurozone HICP inflation is expected to ease to 2.0% year-over-year (YoY) in December, from 2.1% in November. Meanwhile, the annual core inflation is anticipated to remain consistent at 2.4% in the reported month.

The monthly Eurozone inflation and core inflation were at -0.3% and -0.5%, respectively, in November.

How could the Eurozone Prelim HICP affect EUR/USD?

The EUR/USD pair may gain ground if Eurozone HICP data comes in stronger than expected. The inflation and core inflation are both expected to come above the European Central Bank's (ECB) target of 2.0% YoY. However, the pair remains subdued following the release of Germany’s Retail Sales, which climbed 1.1% year-over-year (YoY) in November, following an increase of 0.9% in October. Monthly Retail Sales fell 0.6% in November, against a 0.3% decline in October and the market expectations of a 0.2% increase.

The EUR/USD pair also depreciates as the US Dollar (USD) rebounds and continues to gain ground ahead of the upcoming US economic data that could shape expectations for Federal Reserve (Fed) policy. US ADP Employment Change and ISM Services Purchasing Managers’ Index (PMI) data for December will be eyed later in the day.

Technically, the EUR/USD pair extends its losses, trading around 1.1680 at the time of writing. Technical analysis of the daily chart indicates a potential for a bearish bias; the 14-day Relative Strength Index (RSI) at 43.22 confirms waning momentum.

The EUR/USD pair moves below the 50-day Exponential Moving Average (EMA) at 1.1682. A close below the medium-term average would put downward pressure on the pair to test the monthly low of 1.1589, set on December 1. Rebounding above the 50-day EMA would maintain the medium-term price momentum and support the pair to target the nine-day EMA at 1.1720, followed by the three-month high of 1.1808, which was recorded on December 24.

Pound Sterling (GBP) is likely to range-trade, most likely between 1.3470 and 1.3535. In the longer run, GBP could rise to 1.3590; the odds of a continued rise above this level are not high.

GBP might rise to 1.3590

24-HOUR VIEW: "GBP dropped to a low of 1.3415 on Monday and then rebounded sharply. Yesterday, when GBP was at 1.3535 in the early Asian session, we highlighted that 'there is a chance for the sharp rise in GBP to test 1.3560 before levelling off'. We also highlighted that 'based on the current momentum, we do not expect 1.3590 to come into view'. GBP then rose to 1.3567 but instead of levelling off, it pulled back to a low of 1.3492. Upward momentum has slowed with the pullback, and today, we expect GBP to range-trade, most likely between 1.3470 and 1.3535."

1-3 WEEKS VIEW: "We revised our GBP view to positive yesterday (06 Jan, spot at 1.3535), indicating that GBP 'could rise to 1.3590'. However, we pointed out that 'the odds of a continued rise above this level are not high'. GBP subsequently rose to 1.3567 before staging a relatively sharp pullback. While upward momentum has slowed somewhat, we will maintain the same view as long as GBP holds above 1.3455 (no change in ‘strong support’ level)."