Summary:
- EMU headline inflation ticks up in June in line with the median estimate
- Core inflation slows as expected, energy prices led a headline CPI increase
- EURUSD trades above its key technical support
Euro Area inflation accelerated in June reaching a magic 2% threshold and matching the median estimate built on economists’ forecasts. At the same time core inflation excluding the most volatile components such as food and energy ticked down to 1%, but it was in line with expectations as well. The euro largely brushed off the Eurostat report and held its gains. Notice that the shared currency together with the Swedish krona is the strongest one as of 10:51 am BST.
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Euro Area inflation reached in June its highest point since December 2012, but core inflation remained lacklustre. Source: Macrobond, XTB Research
The euro barely responded to the June’s inflation releases as the data matched expectations. That said, even as the headline inflation rate already hit the ECB target, defined as below but close to 2%, the report is unlikely to persuade more central bank members to opt for a rate hike in the near-term. Let us recall that the ECB signalled earlier this month that any rate rises are unlikely at least over the next 12 months. In also needs to be said that the headline inflation increase was mainly driven by energy prices which rose as much as 8% in annual terms, the most since February 2017. At the same time another category being stripped out from the core gauge - food, alcohol and tobacco - reached its highest level since August 2013.
Moreover, services prices grew just 1.3% this month following a 1.6% pick-up in May suggesting companies have faced some difficulties in passing rising costs on customers. This gives us quite the blurry inflation outlook in the whole European economy pointing that striking a 2% level has been propelled solely by higher energy and food prices. Bear in mind that ECB policymakers are looking for convincing and long-lasting inflationary signs which, it seems, have yet to come up. Nonetheless, while the labour market continues tightening it should, sooner or later, result in rising inflation in the whole economy when companies’ margins shrink.
The long-term backdrop on the EURUSD has not changed after the inflation release, and the pair is still expected to bounce from its pivotal support placed at around 1.1450. Do remember that a deal on an immigration crisis struck overnight by the EU leaders may also act in favour of the common currency in the near-term. The closest resistance where bulls may come upon is localized at 1.1850. Source: xStation5
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