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Eurozone CPI pulls back; DE30 remains in breakout territory

Summary:

  • Eurozone CPI flash estimate Y/Y: 1.2% vs 1.3% exp
  • Prior reading revised down to 1.3% Y/Y from 1.4% previously
  •  European bourses consolidate after break higher

Inflation in the Eurozone continues to show little sign of returning to target anytime soon with the latest figures revealing another drop. The CPI flash estimate for April came in lower at 1.2% Y/Y against consensus forecasts for a 1.3% Y/Y reading. The prior print was also subject to a downwards revision and now stands at 1.3% after previously being 1.4%. 

Whilst the headline reading suggests that price pressures are on the wane, the core is even worse. In Y/Y terms the core CPI flash estimate fell to 0.7% from 1.0%, with consensus forecasts of 0.9%. This is clearly far from the ECB target of 2.0% and could weigh on the banks decision making going forward - especially when we consider the recent trend is quite clearly lower. 

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 Euro area inflation continues to drop lower which may see the ECB hold off on tightening policy significantly later this year. Source: Eurostat, Bloomberg, survey of economists

Inflation was moving quite firmly towards target just over a year ago but the sharp rally seen in the Euro following the French elections has provided a headwind to price pressures and they have fallen back for much of the last year. 

Following there break for Labour day on Tuesday, European indices resumed trade in a bullish mood yesterday morning with several bourses making potentially significant breakouts. The DE30 broke above a potentially key swing level around 12650 yesterday with the market moving above the 50% fib of the larger declines seen from the all-time high to the March low.  

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 DE30.cash moved above the 50% fib at 12646 yesterday and reached a high not far from the 61.8% level at 12870. Source: xStation

As well as the 50% fib the area around 12650 level was also a prior swing resistance, and near the top of the D1 Ichimoku cloud and 200 day SMA. In breaking above all these in such a decisive manner the price action was clearly bullish and longs will now be looking for further upside in the coming sessions as long as price remains above 12650. 

 

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