EURUSD, H1 & H4
Eurozone Dec HICP inflation was confirmed at 1.6% y/y, in line with the preliminary reading and down from 1.9% y/y in the previous month. The deceleration was mainly due to lower energy price inflation, which fell back to 5.4% y/y from 9.1% y/y in November. Core inflation remained at 1.0% y/y, steady versus November and only marginally above the 0.9% y/y registered in December 2017. The ECB has been flagging rising wage growth amid tightening labour markets, but with growth forecasts being revised down, the risk is that the improvement in employment will start to fade, which would also reduce wage pressures. Still, some of the increased demand for labour is also due to the fact that companies are reluctant to invest in more production capacity amid the uncertain growth outlook and would rather take on more staff, at least temporarily. This could mean that labour demand may hold up more than headline growth numbers might suggest – at least for now.
Earlier, EURUSD had lifted on the back of broader Euro gains, driving the pair to a 1.1401 intraday high, up from the 13-day low that was seen in the early London session at 1.1371. EURJPY and most other euro crosses have concurrent risen. There was no apparent news for this rally before the CPI data was announced.
EURUSD has been in a downward phase over the last week, and expectations are that this bias will remain dominant for now, given the backdrop of the Eurozone-slowing narrative. One caveat to this view is the risk that today’s US jobless claims spikes as a consequence of the partial government shutdown, which would likely spark a Dollar downturn. EURUSD resistance comes in at 1.1420 with initial support at 1.1375, 1.1350 and the 2019 January low at 1.1308.
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Stuart Cowell
Head Market Analyst
HotForex
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