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Euro Mixed as Weak September CPI Figures Highlight Risks Ahead of ECB

Christopher Vecchio

Talking Points:

- Euro-Zone inflation at lowest reading since February 2011.

- Weak inflation seen as indication of slowing economic growth.

- Data adds evidence that ECB might act again soon.


Price pressures in Europe are falling once more, which will catch policymakers’ eyes this week when the European Central Bank gathers for its October meeting. Euro-Zone core inflation fell to its lowest level since February 2011, which predated the ECB’s second of two LTRO injections to shore up regional banks’ ailing balance sheets. The data also suggests that weak credit growth, which ECB President Mario Draghi warned about in August, may be holding back the recovery.

Accordingly, at a time when Euro-Zone economic prospects appeared to have been picking up, the implication of the weak inflation data – that growth in Europe may be losing momentum – introduces another layer of uncertainty for the Euro amid rising political tensions in Italy. With attention drawn away from data and more focused on headlines again (reminiscent of the summer/fall 2011), the weaker inflation data has had only a minor impact on the Euro thus far.

- Consumer Price Index Estimate (SEP): +1.1% versus +1.2% expected, from +1.3% (y/y)

- CPI (Core) (SEP A): +1.0% versus +1.1% expected, from +1.1% (y/y)

EURJPY 1-minute Chart: September 30, 2013

Euro_Mixed_as_Weak_September_CPI_Figures_Highlight_Risks_Ahead_of_ECB_body_Picture_1.png, Euro Mixed as Weak September CPI Figures Highlight Risks Ahead of ECB

Charts Created using Marketscopeprepared by Christopher Vecchio

Following the release, the EURJPY slipped from ¥132.13 to as low as 131.99, but had soon rebounded to as high as 132.17. While the data hasn’t provoked consistent selling, the rebound from the gap open lower to start the week has been stunted. The EURJPY closed last Friday at 132.78, and opened this week at 131.80/85.

--- Written by Christopher Vecchio, Currency Analyst

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