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EURUSD slips further below 1.25 as CPI weighs

H.S. Borji
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The euro edged lower against its US counterpart Friday, as deflationary pressures in Germany and the broader Eurozone continued to fuel speculation about quantitative easing.

The EURUSD continued to trade below 1.25, bottoming out at 1.2431 in intraday trade. The pair would subsequently consolidate at 1.2456, slightly below the previous close of 1.2461. The pair faces immediate support at 1.2437 and resistance at 1.2496.

The pair fell below the 1.25 handle Thursday as weak German inflation data reminded investors about the perilous state of the Eurozone. German consumer prices rose 0.6 percent in the 12 months through November, a nearly five-year low, the Federal Statistics Office said in a preliminary reading. The European Union harmonized gauge was even lower, showing consumer prices advanced only 0.5 percent annually.

Eurozone inflation fell back to a five year low in November, cooling to 0.3 percent in the 12 months through November, the European Commission reported today in a preliminary reading. So-called core inflation, which strips away volatile elements such as food and energy, increased 0.7 percent annually, unchanged from the previous month.

Annual inflation has been below the European Central Bank’s 2 percent target since the start of 2013. CPI has trended below 1 percent, the ECB’s “danger zone,” for more than a year. Inflation started to decline in late 2011 after peaking at 3 percent.

The ECB is considering additional measures to boost the economy should the current stimulus package prove ineffective. Several of the ECB’s top brass have repeatedly stated the central bank would do whatever it takes to help the economy regain momentum. The central bank has already cut its benchmark interest rate to 0.1 percent and introduced a series of asset purchase programs to stimulate price recovery and economic growth.

Deflation could further dampen the Eurozone’s recovery efforts. Declining prices harm the economy by reducing demand for goods and services, as consumers and businesses delay purchases in anticipation of future price cuts. This vicious cycle cools the economy and triggers widespread job losses.

The Eurozone economy grew just 0.2 percent in the third quarter, as the region’s GDP remains more than 2 percent before its pre-crisis levels. In annualized terms, the 19-nation currency region grew 0.6 percent as Germany narrowly escaped recession and France posted a stronger gain on bigger inventory accumulation. Greece, the nation hit the hardest since 2008, finally escaped recession by growing 1.7 percent annually in the third quarter. However, the Greek economy is still about 25 percent below pre-crisis levels.

In other news, Eurozone unemployment remained at 11.5 percent in October for the third consecutive month, although the number of people out of work increased 60,000 to 18.39 million.

In other trading, the euro advanced against the British pound, as the EURGBP rose 0.42 percent to 0.7951. The pair faces immediate support at 0.7902 and resistance at 0.7960.

The common currency surged against the Japanese yen, as the EURJPY climbed 0.64 percent to 147.68. The daily technical chart shows support and resistance at 1.4635 and 147.73, respectively.

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