In the mid-term, Inflation will be under ECB target
By: Ahura Chalki
Market analyst – IFC Markets
Mrs. Lagard, in her earlier Interview with La Provence, said that the Expected inflation level for Eurozone in the medium term would stabilize below the Central Bank objective. As she said, the European Central bank inflation expectation is around 2%, “which is something we haven’t seen in more than eight years.” she added, “The increase in prices should nevertheless slow to 1.5% in 2022 and 1.4% in 2023. “
However, she emphasized that ECB’s monetary policies, followed by European Governments and the EU, align with ECB expect from economic recovery. She added, “We observe a price increase which is notably driven by two base effects. “
These two factors are Energy price, which was in its lowest multi-year levels after hit by the pandemic, under $25 for Oil prices, and now it is back above $70 in less than 12 months. And the second factor is German’s tax policy. Germans lowered their VAT to support the economic recovery, and now it’s restored (since 1 January 2021).
And since mentioned factors will be lost their effect in few months, officials in the central bank expect that price to increase sustainably and lower the inflation rates.
Market reaction. EURUSD H4 chart.
Euro almost did not react to Mrs. Lagard’s speech as there was nothing special to get the investors’ attention. However, we should not forget about NFP data and its effect on the US dollar, so pairing will mostly be waiting for US data.
From the technical point of view, trading under 20 SMA, while CCI also moves under -100 level, generally asset trading in a clear downtrend. Trading under June 17 and 18 low at 1.1845 will hold the strong support for lower numbers, while recovery will be trustworthy, only above the upper band of BB at 1.1920 and then confirmed with a daily close above 1.2000.
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