Euro dips as German inflation soars

German data was in the spotlight on Wednesday, with the release of German inflation and ZEW Economic Sentiment. The numbers were worrying, but the euro’s response was muted, as the currency trades in the mid-1.08 range.

German, US inflation soars

German CPI for March came in as expected, at 7.3% YoY. Still, this was a large jump from the 5.1% gain in February and marks the highest inflation release since Germany reunified in 1990.

The drivers behind the jump are not hard to identify. The ongoing war in Ukraine, which looks like it will intensify, has caused significant inflation, especially for heating oil, natural gas and food products. Heating oil, for example, has soared 144% in the past 12 months. Germany is also struggling with supply disruptions due to the Covid pandemic. This has which has resulted in shortages of computers chips and many other products and hampered the key manufacturing sector.

ECB President Lagarde has gone on record as being dismissive of inflation, taking a page from (the old) Fed Chair Powell and arguing that inflation was transitive. Eurozone inflation lagged behind the numbers in the US or UK, but today’s German CPI release clearly shows that eurozone inflation is red-hot and the ECB will need to be more aggressive in order to lower inflationary pressures.

There was more bad news as German ZEW Economic Sentiment worsened in April, with a reading of -41.0 (-39.3 prior). This was better than the consensus of -48.0 but still points to deep pessimism over the economic outlook amongst financial experts. The Eurozone ZEW release showed similar numbers.

In the US, inflation continues to spiral, with the March headline figure hitting 8.5%, YoY, the highest level since December 1981. Inflation is being driven by supply bottlenecks, rising energy and food prices, and robust consumer demand.

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EUR/USD Technical

  • There is resistance at 1.1008 and 1.1141
  • 1.0838 is a weak support line. Below, there is support at 1.0705

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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