Eurozone inflation slows slightly in December
The Eurozone’s preliminary Harmonized Index of Consumer Prices (HICP) rose at an annual pace of 2.0% in December, matching market forecasts and slightly below the 2.1% increase recorded in November. On a monthly basis, inflation rebounded by 0.2% after a 0.3% decline in the previous month, signaling a mild recovery in price pressures across the bloc.
Core HICP — which excludes volatile categories such as food, energy, alcohol, and tobacco — increased 2.3% year‑on‑year, easing from 2.4% in November and falling marginally short of expectations. Month‑on‑month, core inflation rose 0.3%, suggesting that underlying price dynamics remain stable but continue to cool gradually.
These figures indicate that while inflation is moving closer to the European Central Bank’s target, policymakers may still require stronger evidence of a sustained return to 2% before considering meaningful policy adjustments.
Following the release, EUR/USD attracted fresh buying interest and climbed toward 1.1690, as traders interpreted the data as a sign of persistent—though moderating—price pressures in the Eurozone. The reaction reflects expectations that the ECB may adopt a more cautious stance on rate cuts compared to earlier market assumptions.
The Euro showed a mixed but generally firm performance against major currencies, with its strongest gains recorded against the Canadian Dollar. Market flows suggest that investors are reassessing the Euro’s near‑term outlook ahead of additional economic releases later in the week.
Eurostat will publish the full preliminary HICP report at 10:00 GMT. Consensus expectations include:
Headline HICP easing from 2.1% to 2.0%
Core inflation holding near 2.4%
Monthly inflation and core inflation rebounding from November’s sharp declines
These data points will be crucial for shaping expectations around the ECB’s policy path, especially as officials emphasize the need for confidence in a durable disinflation trend.
A stronger‑than‑expected inflation reading could support the Euro, as it would reduce the likelihood of early rate cuts by the ECB. However, several headwinds remain:
Germany’s Retail Sales showed 1.1% annual growth but a 0.6% monthly decline, highlighting weak domestic demand.
The United States Dollar continues to recover ahead of key economic releases, including the ADP Employment Change and the ISM Services PMI.
Market sentiment remains sensitive to incoming United States data that could influence expectations for the Federal Reserve’s policy trajectory.
EUR/USD trades near 1.1680, extending its recent losses. Technical indicators point to a continued bearish bias:
The 14‑day RSI stands at 43.22, signaling weakening momentum
Price action remains below the 50‑day EMA at 1.1682
A daily close below this level could open the door toward the monthly low at 1.1589
On the upside, recovery above the 50‑day EMA would target 1.1720 (9‑day EMA) and 1.1808, the three‑month high set on December 24
As long as the pair remains below the 50‑day EMA, downside risks dominate the medium‑term outlook.