EU Inflation Preview: ECB’s aggressive stimulus coming and nothing can change that

Central banks from around the world, all have one common mandate: to keep inflation under control. The desire inflation may variate, but is not just about preventing it from skyrocketing, is also avoiding it being too low so as it produces economic stagnation. It’s a matter of balance, in which economies need a bit of healthy price pressures to keep the economy rolling.

Depressed inflation leading ECB

The Union has been battling with ultra-low inflation for over a decade, to no avail. The European Central Bank will try once again to boost growth by announcing new stimulus measures, and there’s nothing the release of preliminary August CPI estimates can do to change that.

Annual CPI will be out this Friday, foreseen up by 1.0%, unchanged from July’s estimate, while core CPI is expected to print 1.0% from the previous 0.9%. In fact, there’s a chance that the numbers miss the mentioned forecast, given German figures released Thursday, as monthly inflation decreased by 0.1% monthly basis, while, when compared to a year earlier, it was up by 1.0%, below the previous 1.1% and missing the market’s expectation of 1.2%.

The data has more chances of having a negative impact on the EUR than a positive one, as even better-than-expected numbers won’t bend policymakers’ hands.

EUR/USD technical outlook

The EUR/USD pair is technically bearish and worth noting that ECB’s stimulus has already been partially priced in. The uncertainty is related to whether European policymakers will announce additional measures beyond the LTRLO III. If inflation misses expectations, the odds for steeper measures will add pressure on the shared currency.

The critical level to watch on the downside is 1.1026, the multi-year low set this August, with a break below it exposing the 1.0960/80 region. Sellers are aligned at around the 1.1100 figure and seems unlikely that the pair could recover above it only with an inflation update.