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Euro area economics: Previewing next week’s key euro area inflation release
The November euro area ‘flash’ HICP estimate is published on Wednesday, with country-level data for Germany and Spain released on Tuesday, and data for France and Italy in advance on Wednesday morning.
Next week’s euro area HICP release is likely to be particularly significant, given market expectations that this month’s release could see the first drop in the y/y rate of HICP inflation since June 2021 (notwithstanding the marginal decline, only visible at 3 decimal places, seen in April). Market pricing currently points to a print of a little over 10.4% y/y, which would represent a 0.2% decline from the 10.6% y/y recorded in October.
Even if only small, a decline in the y/y rate of inflation would feed into the narrative that inflation in the euro area, as in the US (where CPI inflation is now down 1.4% from its June peak), has peaked and is now on a downward trajectory. Indeed a decline in the y/y rate could be viewed by the market as a validation of the current trajectory implied by market pricing, which sees headline inflation declining steadily throughout next year to end 2023 at just 2.8%. Conversely, another significant increase in inflation is likely to be interpreted as a sign that inflation is proving more persistent in the euro area than in the US.
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Technical Analysis
EURGBP is notoriously choppy so taking the TP 1 and getting the rest of the position to break even is key. Lower inflation expectations will lead to a softening of the ECB's rate hike cycle and the euro can fall. That said the US dollar is also currently in a downtrend, so the EURUSD will likely keep the single currency supported against a lot of other currency crosses. For all of the talk of how badly the UK is doing since Brexit and due to the Pandemic, I see the war in Ukraine adding more pressure to Europe than the UK and economically the UK can do better. The OECD has the UK GDP growth since the 2019 dip above Germany and France, so that would help the technicals keep moving lower.
Euro area economics: Previewing next week’s key euro area inflation release
The November euro area ‘flash’ HICP estimate is published on Wednesday, with country-level data for Germany and Spain released on Tuesday, and data for France and Italy in advance on Wednesday morning.
Next week’s euro area HICP release is likely to be particularly significant, given market expectations that this month’s release could see the first drop in the y/y rate of HICP inflation since June 2021 (notwithstanding the marginal decline, only visible at 3 decimal places, seen in April). Market pricing currently points to a print of a little over 10.4% y/y, which would represent a 0.2% decline from the 10.6% y/y recorded in October.
Even if only small, a decline in the y/y rate of inflation would feed into the narrative that inflation in the euro area, as in the US (where CPI inflation is now down 1.4% from its June peak), has peaked and is now on a downward trajectory. Indeed a decline in the y/y rate could be viewed by the market as a validation of the current trajectory implied by market pricing, which sees headline inflation declining steadily throughout next year to end 2023 at just 2.8%. Conversely, another significant increase in inflation is likely to be interpreted as a sign that inflation is proving more persistent in the euro area than in the US.
---
Technical Analysis
EURGBP is notoriously choppy so taking the TP 1 and getting the rest of the position to break even is key. Lower inflation expectations will lead to a softening of the ECB's rate hike cycle and the euro can fall. That said the US dollar is also currently in a downtrend, so the EURUSD will likely keep the single currency supported against a lot of other currency crosses. For all of the talk of how badly the UK is doing since Brexit and due to the Pandemic, I see the war in Ukraine adding more pressure to Europe than the UK and economically the UK can do better. The OECD has the UK GDP growth since the 2019 dip above Germany and France, so that would help the technicals keep moving lower.
