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Euro Test Resistance but the Trend Points to Lower Prices

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Euro Test Resistance but the Trend Points to Lower Prices

Inflation is usually considered the enemy of growth and generally leads expansion periods. With central banks considering different options that will spur economic growth, inflation remains subdued and could keep central banks accommodative for an extended period of time. Last week the ECB cut is refinance rate in the hope that growth will accelerate and prices will begin to rise. Recent inflation data shows that prices are declining, despite rising yields globally.

Of the wealthy countries, the UK has stood out with its stubbornly high inflation. Base effects and the 7.5% rise of sterling on the BOE’s broad trade-weighted index over the past 18 months were expected to see price pressures ease. The UK reported headline CPI fell to 2.2% from 2.7% in September, which is a welcome sign for the Bank of England. Economists had expected a smaller decline to 2.5%. The biggest pressures on the year-over-year rate stemmed from transportation and education. This is a four-year low for UK inflation. It has not been this close to its target since 2009. The core rate fell to 1.7% from 2.2%, which also represents a four-year low.

European inflation was also reported on Tuesday. In Germany, the consumer price index slowed to the lowest rate since August 2010, easing to +1.2% on year from +1.4% previously. Italian inflation edged down to +0.8% from +0.9%.

The Euro attempted early in the trading session to test resistance near former support which coincides with the 10-day moving average at 1.3490. A close above this level would likely generate a test of target resistance near 1.36. Support on the currency pair is seen near 1.33.

Momentum on the currency pair is negative with the MACD printing in negative territory with a downward sloping trajectory. The RSI on the other hand is pointing upward, after printing as low as 34 last week.

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