THE TAKEAWAY: Euro-zone producer prices continue to decline in December -> Annual inflation fell to 2% in January -> Euro trading unchanged

Euro-zone producer prices continued to decline for the second straight month in December. The PPI dropped 0.2% over the month, matching expectations for the decline in producer prices to continue at the same pace. Producer prices were 2.1% higher than December 2011, according to Eurostat.

In January, annual inflation fell to 2%. The ECB previously predicted that inflation would fall within its target 2% in 2013. Higher inflation discourages the ECB from cutting the interest rate in its next meeting, therefore lower prices are Euro negative. However, the ECB expects a recovery later in 2013 and therefore may not cut the interest rate even with the lower inflation.

The Euro did not react to the as expected producer prices. EURUSD dropped below 1.3600 earlier in today's Forex trading, possibly due to scandals weighing on the confidence in the Spanish and Italian governments. The broken resistance line around 1.3500 may now provide support, and resistance could be provided by the 14-month high recently set at 1.3710.

EURUSD Daily: February 4, 2013

Euro-Zone_Producer_Prices_Continue_to_Decline_body_eurusd_daily_chart.png, Euro-Zone Producer Prices Continue to Decline
Chart created by Benjamin Spier using Marketscope 2.0

-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to bbspier@fxcm.com .

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