Euro jumps after inflation report

The euro has breached the $1.38 level, following today’s unemployment and inflation data release.

The euro is up 0.7% after the eurozone revealed unemployment had remained unchanged at 12%, while inflation was higher than expected at 0.8%. High levels of inflation are bad for an economy but a certain amount of inflation is required to keep the economy moving.

The European Central Bank (ECB) has set themselves an inflation target of 2%, and even though we are nowhere near that figure we are moving in the right direction. The ECB was coming under pressure recently as deflation was threatening recovery, but now inflation has ticked up there is no need to cut interest rates further. It is worrying that unemployment is still at 12%, and while the ECB may be off the hook for now, if the jobless rate increases in the future there could be renewed calls for a loosening of the monetary policy.

The euro was helped by softer-than-expected US gross domestic product data, which came in at 2.4% versus the estimated 2.6%. Slower-than-expected growth from the US suggests there will be no tapering of the stimulus package in the near future.

As Brenda Kelly stated, now that we have taken out the $1.3740 highs of 24 January we could be on track to move past the resistance level of $1.3833. However, breaking the $1.3810 level has been difficult in the past. 

Spot FX EUR/USD chart

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