Euro Slides As Eurozone Consumer Price Inflation Turns Negative Unexpectedly

The euro was lower against its most major counterparts in European trading on Monday, after Eurozone consumer prices unexpectedly declined in February at the fastest pace in a year, adding to speculation that the European Central bank would announce additional stimulus at its latest policy decision next week.

Preliminary data from the statistical office Eurostat showed that the flash harmonized index of consumer prices fell 0.2 percent year-on-year following a 0.3 percent rise in January. Economists had expected a 0.1 percent gain.

The latest decline was the biggest since February last year, when prices fell 0.3 percent.

The core HICP that excludes fresh food and energy prices rose 0.8 percent annually after a 1 percent climb in the previous month. Economists had forecast a 0.9 percent increase.

Economists predict the ECB to cut its deposit rate further by 10 basis points to -0.4 percent in March, while ramping up its 1.5 trillion euro bond purchase programme.

The currency was also hammered by rising risk aversion, as European shares fell despite encouraging German retail sales and U.K. mortgage approvals data as well as news that China’s central bank will cut the reserve-requirement ratio for all banks by 0.5 percentage point.

The euro showed mixed performance in Asian deals. While the euro rose against the greenback and the pound, it held steady against the franc. Against the yen, it was lower.

The single currency depreciated to 1.0896 against the greenback, its lowest since February 2. This is down by 0.27 percent from last week’s closing value of 1.0925. The euro-greenback pair is likely to locate support around the 1.07 zone.

The euro slid to 123.08 against the Japanese yen, its weakest since February 24, when it hit nearly 3-year low. Continuation of the euro’s downtrend may take it to a support around the 122.00 region. The pair ended Friday’s trading at 124.51.

The 19-nation currency pared gains to 0.7858 against the pound, from a high of 0.7898 hit at 2:00 am ET. The euro is seen finding support around the 0.77 level.

Data from the Bank of England showed that U.K. mortgage approvals increased to a 2-year high in January.

The number of mortgages approved in January rose to 74,581, the biggest since January 2014, from 71,335 in December.

Reversing from early 4-day high of 1.5384 against the aussie and 5-day high of 1.6636 against the kiwi, the euro edged down to 1.5208 and 1.6466, respectively. The next possible support levels for the euro may be located around 1.50 against the aussie and 1.63 against the kiwi.

The euro fell back to 1.4771 against the Canadian dollar, heading to pierce its early nearly 3-month low of 1.4745. On the downside, the euro may find support around the 1.45 mark.

On the flip side, the euro stayed firm at 1.0910 against the Swiss franc, compared to 1.0885 hit late New York Friday.

Survey data from the Swiss Economic Institute showed that a forward-looking indicator of the health of the Swiss economy climbed for a second straight month in February to its highest level in nine months, signaling that the prospects are brightening.

The Swiss KOF Economic Barometer rose to 102.4, its highest level since May last year. The January score was revised to 100.4 from 100.3.

Looking ahead, Canada industrial product and raw materials price indexes for January, U.S. Chicago PMI for February and U.S. pending home sales data for January are set to be released in the New York session.

The material has been provided by InstaForex Company – www.instaforex.com