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The EUR/USD is trading at $1.3794, up 0.3%, after Brussels revealed inflation had dropped to 0.5% in March and was well below the European Central Bank’s (ECB) target of 2%.
The ECB has come under pressure recently to do something about the falling level of inflation. Mario Draghi claims he sees no sign of deflation and is unlikely to take any action until he absolutely has to. Having a low inflation level may be good for consumers as it does not erode their spending power, but it sends a message that demand is weak and the ECB may be called upon to encourage economic activity.
Ewald Nowotny of the ECB declared the recession in the eurozone over, but the Austrian central banker added there were some issues that still needed to be resolved. Mr Nowotny’s statement comes ahead of the ECB’s interest rate decision and press conference on Thursday, with the consensus looking to keep rates unchanged at 0.25%.
The euro is trading between the 50- and 200-period moving averages. If the Chicago purchasing managers index report is stronger than expected, we could move towards the recent low of $1.3706.