Euro Falls to Fresh Trend Lows Following Weak Inflation Data; RSI Oversold

Posted On 07 Jan 2015
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The dollar made new trend highs against the euro aided by data misses out of Europe. EUR/USD clocked near nine-year low of 1.1842 in the Asia time zone, and a subsequent bounce in early Europe stalled shy of 1.1900 before the euro subsequently drifted lower amid a batch of euro-negative data.

Eurozone unemployment rate steady at 11.5% in November, as expected. National rates continue to show huge disparities, with rates of around 25% in Spain and Greece contrasting with rates of around 5% in Germany and Austria. Especially youth unemployment remains a major problem, with the overall Eurozone rate at 23.7, although with a falling trend. In Spain more than 50% of the under 25 are without a job, although again the trend is declining.

The German jobless numbers dropped 27K in December, more than expected and bringing the jobless rate to a record low of 6.5%, from 6.6% in the previous month. The German labor market has remained robust throughout the crisis and with confidence indicators picking up again, the chances are that jobless rates will remain very low and that consumption will continue to support overall economic activity.

On the inflation front, Eurozone December HICP inflation dropped to -0.2% year over year from 0.3% year over year in the previous month. This was below consensus of -0.1% year over year, but not a total surprise after the weak national data. The deceleration over the month was entirely due to lower energy prices and prices excluding energy rose 0.6% year over year, unchanged from November, while core inflation actually picked up to 0.8% year over year from 0.9% year over year.

This backs the view that there is a limited risk of a real deflationary spiral, but the drop of the headline rate into negative territory for the first time since 2009 will add to Draghi’s argument for fully blown QE, with the focus now shifting to how not if the central bank will implement its bond purchase program.

The Euro is trading near monthly support levels with the next target the 2005 lows at 1.1630. The currency pair is oversold on a monthly basis with the RSI printing a reading of 29, which is below the oversold trigger level of 30 and could foreshadow a correction.

The post Euro Falls to Fresh Trend Lows Following Weak Inflation Data; RSI Oversold appeared first on Forex Circles.

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