The inflation in the Eurozone is a hot topic today on the markets in light of the publication of preliminary readings. After weaker than expected preliminary estimates from Germany, there was the possibility of a negative surprise with indications from the Eurozone. The German CPI index slowed in February to 1.4% from 1.6% annually. As for the CPI for the entire euro area, analysts expected core CPI inflation to remain above 1.0% in February. In the second month of this year, CPI inflation was also expected to slow down to 1.2% from 1.3%. In fact, in line with expectations and the first estimate, CPI inflation in February came in at 1.2% on a yearly basis and thus deviated from the ECB target. Its level equaled in February with the reading of the base CPI, which, contrary to the market consensus, stabilized at the level of January 2018.
The lack of inflationary pressure is the main reason behind the ECB loose monetary policy. The yearly inflation target is set at 2.0% minimum, but despite the ECB actions, the inflation does not want to grow higher. The only months when inflation was close to this level was April and May 2017 (2.0% and 1.9%), but since then the average inflation reading was at the level of 1.5%. In the recent months, the inflation is continuing to slide from 1.5% towards 1.0% rather than increase to the ECB target.
Let's now take a look at the EUR/USD technical picture at the H4 time frame. The market has tested the technical support at the level of 1.2203 and slightly bounced back on, but not for long. The bears are pressuring the price to break through this level and drop further towards the level of 1.2165 or even 1.2092. The weak momentum indicator, which is still below its fifty level, supports the bearish outlook.
