Inflation Falls Further
The latest set of economic data for the Eurozone offered a further glimpse into the struggles unfolding with the single market economy. The headline CPI reading for November came in at -0.3% on the headline reading. While this marks and unchanged reading on the prior month, it was slightly worse than the -0.2% reading forecast. The core reading, meanwhile, was unchanged an in line with expectations at 0.2%, reflecting anaemic price pressures in the ailing eurozone.
The ECB has recently highlighted the severity of the subdued inflationary environment within the eurozone and has said that it expects inflation to remain at depressed levels well into next year. With lockdowns still in place in many European countries, the current economic outlook remains highly skewed towards downside risks. Indeed, while the ECB chief has recently acknowledged the positive vaccine news hitting markets, Lagarde was keen to stress that the eurozone economy still needs to be supported in the meantime to get through until such a time that the vaccines are taking effect and the recovery is running of its own momentum.
However, the news was not all bad this week. Eurozone manufacturing for November was confirmed at 53.8 marking an increase on the prior month’s 53.6 reading, and also coming in just above expectations. Traders had been gearing up for a much weaker number given the return to lockdown across many eurozone nations. Indeed, looking at the breakdown of individual nation’s readings Spanish and Italian manufacturing readings were below expectations while France and Germany saw better than expected readings.
ECB To Ease Further
Despite some encouraging data points, In light of the ongoing contraction in inflation, the ECB is widely expected to announce further stimulus when it meets for the upcoming December monetary policy review. The release of the minutes from the last ECB meeting showed the level of concern among policymakers meaning that the question heading into this month’s ECB meeting is more in line of “what” will the bank do, instead of “if” the bank will do something.
Following the breakout above the corrective bear channel (bull flag formation), EURUSD is now trading higher within the larger bullish channel once again. Price is now testing the 1.2012 level resistance which, if broken, will turn attention to the 1.2090 level next. To the downside, any correction will turn attention to the 1.1802 level next.
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