Inflation in Spain came at a spitting distance to the 10% mark, and inflation in Germany shot up to 7.3% in March, compared to 6.3% expected by analysts and 5.15 printed a month earlier. Not only that the expectations were strong, but they have also been strongly beaten, showing how fast the price stability is getting out of control in Europe amid the Ukrainian war.
And it comes as no surprise given the skyrocketing energy prices that add to the supply chain disruptions.
The EURUSD extended gains to 1.1160 as the jaw-dropping inflation data from the Eurozone countries revived the European Central Bank (ECB) hawks, but the chief Christine Lagarde said that the ECB will only ‘move gradually to normalize policy in the face of raging inflation’, and that the ‘first rate hike wouldn’t come before the end of the ECB’s net purchases’. But the bond buying program is not scheduled to end before the Q3.
As such, the ECB is certainly making the same mistake than the Fed, and may pay a high price for not having been responsive enough. And the lack of response is in the phase of becoming a major risk to the European economies.
As per the euro, the risks are tilted to the upside, but the upside is capped by a surprisingly dovish ECB response to the growing threat to European price stability.
Oil down, appetite up
US crude tanked to $101 per barrel this morning on news that the United States is considering the release of up to 180 million barrels from its strategic petroleum reserve over several months to calm soaring crude prices.
That’s good, because OPEC and Russia are likely to stick to their existing deal to gradually increase oil production, which is expected to increase from 400’000 to 432’000 per day… and the extra 32’000 barrels will certainly not ease the tension at the pump.
Despite falling oil prices this morning, the medium-term outlook remains positive on the back of a tight supply and rising demand. The price pullbacks are still seen as interesting dip buying opportunities to strengthen long positions, and the major support to the actual positive trend stands at the 50-DMA, which is a touch below the $100 psychological support.
On the data front, the latest jobs report showed that the US added 455000 new private jobs in March, in line with expectations. The Q4 growth has been revised slightly lower to 6.9%. Due today, the PCE index, which is another gauge of inflation will certainly confirm the rising pressures in February and keep the Fed hawks on alert.
Yet, US and European futures are in the green this morning, as cheaper oil tempers the inflation worries.
