Euro Looks to German Inflation Data for Next Signal

A slumping euro will look to the economic calendar for direction on Tuesday, with German inflation data set to drive the currency markets.

The day begins with a fresh batch of Eurozone sentiment indicators. Beginning at 9:00 GMT, the European Commission’s statistics agency will report on consumer confidence, business climate, economic sentiment and industrial confidence. These broad measures of economic activity provide the latest insights into the health of the euro area recovery.

At 12:00 GMT, Germany’s Federal Statistical Office will release preliminary inflation data for the month of May. The consumer price index (CPI) is forecast to decline 0.1% compared to April, following no change from the previous month. In annualized terms, this would translate into 1.6% growth, down from 2% the previous month.

Germany’s Harmonised Index of Consumer Prices (HICP), which calculates inflation using a method consistent throughout the EU, is forecast to flatline in May and rise 1.6% annually.

The euro faced broad declines at the start of the week, as the US dollar held on to recent gains in light trading during the Memorial Day holiday.

In commodities, oil prices are regaining momentum after a sharp decline last Thursday. Brent crude futures are trading north of $52.00 a barrel. A weekly inventory report from the American Petroleum Institute (API) will be delayed until Wednesday due to Memorial Day.

EUR/USD

The EUR/USD has run into resistance over the past week as the rally stalled near 1.1200. The pair briefly traded above 1.1250 before giving back more than 100 pips to consolidate in the mid-1.1100 region. The common currency declined even further Tuesday morning to reach a session low of 1.1120. A rebounding dollar threatens to undo the euro’s three-week rally. Although the pair remains in an uptrend, further gains may be difficult to justify ahead of the Federal Reserve’s 13-14 June FOMC meeting, which is widely expected to produce a rate hike.

EUR/GBP

The EUR/GBP is a tale of two slumping currencies. After setting at fresh two-month highs, the pair has since fallen back below the 0.8800 handle. The common currency remains in a firm uptrend against its British counterpart after reaching consecutive higher highs over the past three weeks. However, traders can expect a bit of a pullback as the euro loses momentum.

Brent Crude

North Sea Brent crude is in the process of correcting from last Thursday’s sudden price reversal. The contract is back above $52.00 a barrel and racing toward the 23.6% Fibonacci retracement, which corresponds to the $52.70 region. A clean break above that level would lead to a re-test of last week’s swing high near $55.00 a barrel. On the opposite side of the spectrum, Brent is well supported at the 50% Fibonacci retracement.