Eurozone HICP inflation is set to reach 2.0% and thus hit the upper limit for price stability with today’s February release, after higher than expected German and Italian numbers this week. The German rate jumped to 2.2% y/y and while base effects from energy prices are the main reason for now, Bundesbank President Weidmann highlighted that inflation projections, will have to be revised considerably higher, not just for the Eurozone. Not surprising then that he hinted again at a growing rift at the ECB council. Clearly the data will increase pressure Draghi to at least tweak the forward guidance and remove the reference to the possibility of further rate cuts at next week’s council meeting, when the ECB has the updated set of staff projections. The QE schedule will almost certainly be left untouched and we don’t expect a real tapering schedule yet, as Draghi and Co will be eager to assure markets that the ECB will maintain its helping hand at times of high uncertainty on the political front.
Although soggy against the USD the EUR has perked in recent days and today’s CPI figure could continue the trend. EURAUD and EURGBP both look interesting on the Daily time frame; however, the preferred position from last night close is the EURJPY. A long position was taken this morning, at 120.34 following last nights close over the 200 day moving average and breach of the 20 day moving average. Target 1 is the psychological 121.00, which is a little short of the 50.0 Fibonacci level of the tweezer bottom formed last week at 118.24. Target 2 is the top of the Bollinger band, 61.8 Fibonacci level and recent Fractal high at 121.80. RSI and MACD are both neutral with signs of bullishness, the Parabolic SAR turn positive on yesterday’s close. A break of last week’s low at 118.24 would likely take the pair lower. Weekly and Monthly chart support is at 117.50 and 113.80 respectively.
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