EUR/USD eases as inflation ticks lower

The euro is slightly lower on Tuesday. EUR/USD is trading at 1.0719 in the European session, down 0.19% on the day at the time of writing. The euro hit a two-week high on Monday, rising to 1.0776, but couldn’t consolidate and ended the day almost unchanged.

Eurozone CPI eases to 2.5%

The annual inflation rate in the eurozone dropped to 2.5% in June, compared to 2.6% a month earlier and in line with market expectations. The slight decline was driven a slower pace of price rises for food and energy. On a monthly level, CPI was unchanged at 0.2%, matching the forecast. Core CPI was unchanged at 2.9% y/y, a bit higher than the market estimate of 2.8% y/y.

The downward move in inflation is good news and follows a decline in June inflation in Germany, France and Spain. Services inflation in the eurozone, however, climbed 4.1% y/y in June, more than twice the ECB’s target of 2% . The inflation report won’t prod the European Central Bank to cut again in July, after an initial quarter-point cut earlier this month. What can we expect from the ECB? That isn’t clear, as Governing Council members are divided.

Governing Council member Madis Muller said today that the ECB must be patient with further rate cuts and warned against underestimating price stickiness. Another member, Pierre Wunsch said that another cut was an easy decision but there was no urgency. We’ll hear from ECB President Lagarde at the ECB forum in Sintra later today and the euro could react if Lagarde weighs in on the rate path issue.

Federal Reserve Chair Powell will also speak at the ECB forum later today and investors will be looking for clues about rate cut plans. Expectations of a September rate cut have been steady over the past week at around 60%, according to the CME’s FedWatch.
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EUR/USD Technical

• EUR/USD is testing resistance at 1.0752. Above, there is resistance at 1.0790
  1.0709 and 1.0671 are the next support lines

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