Eurozone core inflation falls, drags euro lower

<p><a href="https://api.addthis.com/oexchange/0.8/forward/facebook/offer?url=https%3A%2F%2Fwww.marketpulse.com%2Fnews-events%2Fcentral-banks%2Feurozone-core-inflation-falls-drags-euro-lower%2Fkfisher&amp;pubid=ra-525512e4690e068c&amp;title=Marketpulse%20%7C%20Home&amp;ct=1" target="_blank"><img src="https://cache.addthiscdn.com/icons/v3/thumbs/32×32/facebook.png" border="0" alt="Facebook" /></a><a href="https://api.addthis.com/oexchange/0.8/forward/twitter/offer?url=https%3A%2F%2Fwww.marketpulse.com%2Fnews-events%2Fcentral-banks%2Feurozone-core-inflation-falls-drags-euro-lower%2Fkfisher&amp;pubid=ra-525512e4690e068c&amp;title=Marketpulse%20%7C%20Home&amp;ct=1" target="_blank"><img src="https://cache.addthiscdn.com/icons/v3/thumbs/32×32/twitter.png" border="0" alt="Twitter" /></a><a href="https://api.addthis.com/oexchange/0.8/forward/email/offer?url=https%3A%2F%2Fwww.marketpulse.com%2Fnews-events%2Fcentral-banks%2Feurozone-core-inflation-falls-drags-euro-lower%2Fkfisher&amp;pubid=ra-525512e4690e068c&amp;title=Marketpulse%20%7C%20Home&amp;ct=1" target="_blank"><img src="https://cache.addthiscdn.com/icons/v3/thumbs/32×32/email.png" border="0" alt="Email" /></a></p><p>The euro is lower on Thursday, after a 3-day rally which pushed the currency 1% higher. In the European session, EUR/USD is trading at 1.0861, down 0.57%.</p>
<p><strong>Eurozone CPI steady, core CPI falls</strong></p>
<p>Eurozone inflation was a mixed bag in August. Headline inflation was unchanged at 5.3%, missing the consensus estimate of a drop to 5.1%. There was better news from Core CPI, which dropped from 5.5% to 5.3%, matching the estimate.</p>
<p>The ECB will be pleased with the decline in core inflation, which excludes food and energy and provides a more accurate estimate of underlying press pressures. Many central banks, including the Federal Reserve, have taken pauses in the current rate-tightening cycle, but the ECB has raised rates 13 straight times. Will we see a pause at the September 14^th meeting?</p>
<p>The answer is far from clear. Inflation remains above 5%, more than twice the ECB&#8217;s target of 2%. The central bank is determined to bring inflation back down to target, but that would require further rate hikes and the weak eurozone economy could fall into a recession as a result. ECB member Robert Holzmann said today&#8217;s inflation report indicated that inflation remained persistent and admitted that the latest inflation numbers pose a &#8220;conundrum&#8221; for the ECB.</p>
<p>The markets aren&#8217;t clear on what to expect from the ECB, with the odds of a pause at 67% and a 25-basis point hike at 33%. ECB President Lagarde hasn&#8217;t provided much guidance, perhaps because she&#8217;s as uncertain as everybody else about the September rate decision.</p>
<p>Germany&#8217;s numbers continue to point downwards, as the eurozone&#8217;s locomotive has become an economic burden. The latest release, July retail sales, declined by 2.2% y/y, sharply lower than the revised -0.9% reading in June and below the consensus estimate of -1.2%.</p>
<p>.</p>
<p><strong>EUR/USD Technical</strong></p>
<ul>
<li>EUR/USD is testing support at 1.0831. Below, there is support at 1.0780</li>
<li>1.0896 and 1.0996 are the next resistance lines</li>
</ul>
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