CPI data weighs on euro

The euro is off versus the US dollar as the cost of living in the eurozone dipped, prompting fears of deflation.

The EUR/USD currency cross is trading at $1.3892, down 0.18% after inflation in the eurozone dropped to 0.7% in February, its lowest level in five months. This triggered fears of deflation in the region. In recent weeks Mario Draghi of the European Central Bank has claimed he has not seen any evidence of deflation, but I suspect he does not want to go down the route of monetary easing until he absolutely has to.

The report from Brussels showed that bailed-out countries like Greece, Cyprus and Portugal are experiencing falling prices. As these nation are relatively small it will not have a major impact on the headline figure, but a falling price is still worrying.

The 100-hour moving average is providing support. If we fall through the $1.3888 mark the next support level is $1.3856, the 200-hour moving average. However, I think we will retest the recent high of $1.3965, as today’s inflation does not justify an additional interest rate cut.

Spot FX EUR/USD chart

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