The EUR/USD headed higher after the release of an EU inflation level of 0.5%, worse than the expected 0.6%. The reaction in the EUR/USD reflects a market that is well aware of the deflationary pressures that are hanging over the eurozone, and the lack of action by the European Central Bank to tackle this.
ECB president Mario Draghi is scheduled to hold a press conference on Thursday, and it is highly likely that he will receive a barrage of questions regarding what action he plans to take. At the same time, it is likely that he will also be pressurised into giving a timetable for these events.
As the markets were coming to terms with worse inflation levels in the EU, they were also digesting Janet Yellen’s latest comments. The tone inferred that the current stimulus the US was injecting into the markets could still be around for a while.
The EUR/USD continues to creep higher as it bounces off the 50-day moving average. The consensus for the EU’s interest rate is to remain unchanged at 0.25%, and there may still be surprises yet to be announced; traders should be wary of this.