Inflation: a make it or break if for the EU?

Jens Weidmann, Bundesbank president has been pretty busy this week changing course and becoming a defender of QE in the EU. Ever since the crisis started in the region, German officials had been among the fiercest opponents of bond buying programs, so hearing them now defending the case should be a good base for an EUR bearish case right? Well not exactly: the common currency maintains its bid tone against its rivals even after the IMF repeated this Friday they see room for further easing coming from the ECB.

But there’s not much to do when a trend is established besides actual facts, so current jawboning won’t triggered the required effect: it will take some action on upcoming ECB Meeting in May to make of fundamentals overcome technical studies.  And upcoming week, the market may have the clues of what’s next for the Central Bank in the form of inflation readings:currently around 0.5% yearly basis, another drop will likely have the effect of forcing Draghi’s hand into easing, and it won’t be necessary waiting for May, as there’s a good chance market players will run to price it in. Be aware however, there’s no actual strength in greenback, so EUR slides may be more interesting against stronger rivals such as AUD or JPY.

The Euro area won’t be alone: the US and the UK will also publish their inflation readings: US one is expected to remain steady at 1.6% while UK one is expected to decrease from current 1.7% to 1.6% both yearly basis. Remember that despite Central Banks had been keeping their rates  at record lows for years already, market will trade these ones in relation to probable rate moves and rising inflation should be seen as a short term bullish trigger for both.

The week will also bring other first line data for the UK including employment and PPI figures,another couple of numbers highly related to Central Bank upcoming decisions: positive employment readings are probably the ones with more chances to boost Pound over the days to come.

In the Asian front, Chinese GDP next Wednesday will take center stage, again expected to have decreased: if such is the case, with the number falling below expected, Aussie may suffer in the short term against most rivals, albeit the strength of the currency suggests buyers are still too interest to dismiss dips as buying opportunities.