Home Forex trading German Meals Costs Soar Regardless of Average HICP Print, EUR/USD & EUR/GBP

German Meals Costs Soar Regardless of Average HICP Print, EUR/USD & EUR/GBP

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Euro (EUR/USD, EUR/GBP) Analysis

  • German inflation moderates but food prices rise higher in the euro zone
  • EUR/USD and EUR/GBP technical analysis ahead of US CPI
  • Risk events: US CPI, PPI and Uni of Michigan consumer sentiment data

German Inflation Moderates but Food CPI Rises Higher than other EU Nations

German CPI inflation data revealed a print in line with forecasts (7.5%), appearing to show a moderation in German inflation despite significant headwinds. However, food inflation in Europe’s largest economy has shot up to 14.8% – the highest among EU nations.

The ECB has the arduous task of seeing out a successful transmission of its monetary policy throughout the euro zone without destabilizing the bond markets of riskier EU countries. Markets now anticipate a full 50 basis point hike after the Governing Council meets next month.

Germany HICP Inflation Data

EURO Latest: German Food Prices Soar Despite Moderate HICP Print, EUR/USD & EUR/GBP

Source: Refinitiv, Federal Statistics Office of Germany

The EUR/USD daily chart continues to trade just within the developing trading range. At this rate, price action is likely to break above the descending trendline, not as a result of bullish euro sentiment but rather due to the sideways nature of a pair devoid of any bullish catalysts.

As the trendline falls away, the trading range will attract attention once more. The pair trades above 1.0180 but US CPI data at 13:30 (BST) could provide the necessary push towards the upper bound of 1.0280 should we see a reasonably cooler inflation print. A higher-than-expected print could see EUR/USD move lower towards the lower bound of the range 1.0100. A higher print essentially confirms the current status quo of ‘higher inflation leads to continued rate hikes which tends to support the value of the US dollar’.

EUR/USD Daily Chart

EURO Latest: German Food Prices Soar Despite Moderate HICP Print, EUR/USD & EUR/GBP

Source: TradingView, prepared by Richard Snow

The EUR/GBP pair has advanced off the back of the dire outlook for the United Kingdom, delivered by the Bank of England (BoE) last week Thursday, marking the short term reversal. Since then, the pair now approaches a very interesting zone of confluence which appears near the upper bound of the descending pitchfork and the 0.8470 level – which has acted as a pivot point over the last 2 years. Immediate resistance, however, lies at the 50% Fibonacci level (0.8462).

Support appears at 0.8410, followed by 0.8401 – the 61.8% retracement of the 2022 major move.

EUR/GBP Daily Chart

EURO Latest: German Food Prices Soar Despite Moderate HICP Print, EUR/USD & EUR/GBP

Source: TradingView, prepared by Richard Snow

Risk Events for the Rest of the Week

US inflation data is likely to result in elevated volatility later today and is expected to come in slightly lower on the headline measure (8.7% exp vs 9.1% prior). The on Thursday we have US PPI data which is unlikely to influence markets too much given that the Fed need to see a considerable lowering of prices before adjusting the current path of momentary tightening.

Finally, on Friday we have the University of Michigan Consumer Sentiment report which has rebounded after almost breaching the 50 mark which would suggest a pessimistic economic outlook.

EURO Latest: German Food Prices Soar Despite Moderate HICP Print, EUR/USD & EUR/GBP

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— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX





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