Eurostat will publish its preliminary estimates of Eurozone inflation for December on Friday at 10:00 GMT. The figures are expected to confirm that the European Central Bank made little progress in lifting underlying inflation during 2018, putting into question its plans to begin raising interest rates in the final quarter of 2019.
A bigger concern for the ECB though is the trend for underlying inflation. The two measures of core inflation have been stuck in a flat range since 2017 and have yet to demonstrate a sustained move upwards. The annual rate of CPI excluding energy and food is forecast to remain unchanged at 1.1%, while the rate that also excludes alcohol and tobacco is anticipated to hold steady at 1.0%.
If core inflation fails to pick up over the coming months, or worse, starts to edge lower, it would become increasingly hard for the ECB to maintain its existing forward guidance for
A negative surprise in the CPI numbers could see the EUR/USD falling below immediate support in the $1.1350 area and head towards $1.1325. If this supports also fails, it would become easier for the bears to retest the $1.1307 low, which, if breached, would drag the EUR/USD below the medium-term ascending trend line and shift the focus back to the downside.
However, if the data shows some build-up of inflationary pressures, the EUR/USD may manage to cross above the 50-period moving average around $1.1410, strengthening the current weak upside momentum. A break above this hurdle would make it possible to successfully challenge the next key resistance at $1.1480.
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