Eurozone CPI Falls Sharply in August

EZ CPI Drops SharplyThe latest round of eurozone CPI figures made for better reading for the ECB today. Headline CPI was seen cooling to 4.3% last month, down from 5.2% prior and below the 4.5% the market was looking for. Similarly, core CPI was seen cooling to 4.5% from 5.3% prior, below the 4.8% the market was looking for. Stickiness in recent inflation readings has been a major headwind for the ECB. However, with inflation now taking a firm step lower, the bank’s recent signal that it will look to hold rates steady going forward looks appropriate.ECB Rates ShiftAt its latest meeting, the ECB cited concerns over downside risks to the eurozone economy and the negative impact that higher rates and elevated inflation was having. While still more than double the bank’s target, this latest data is at least strong evidence of a move in the right direction and should keep ECB tightening expectations sidelined. EUR is rallying today as a result of weakness in the US Dollar. However, given the fresh divergence in terms of the outlook for the Fed and the ECB, any fresh US data strength today will likely see the pair coming under renewed selling pressure. Moreover, if EURUSD does recover further form here, this should provide better levels to sell going forward with USD expected to resume the uptrend following this correction.Technical ViewsEURUSDThe sell off in EURUSD has seen the market stalling into a test of the 1.0515 level for now. While this area holds as support, a correction higher looks likely, with momentum studies moving up off lows also. However, given the recent decline, the medium-term focus remains bearish while the 1.0785 level holds above as resistance.