Investors to focus on the latest inflation estimate figures throughout this morning's European Trading Session. Traders should note that these figures are not the final figures but are the estimated inflation figures Eurostat releases monthly. According to Eurostat, the Yearly Consumer Price Index is expected to decline from 8.6% to 8.5%. This is 0.2% higher than expected and shows that the European Central Bank’s rate hikes have not had the desired effect.
In addition, the Core Consumer Price Estimates are expected to increase from 5.3% to 5.6%. Again this is a major concern for investors, specifically for traders speculating the price of European stocks and indices will rise. The announcement means the European Central Bank will likely take a harsher stance towards inflation and keep hiking interest rates to 4%.
DAX - Inflation a Concern for European Stocks
The DAX has shown price movements in both directions after the CPI announcement from Eurostats. However, the price declined by 0.35% within 15 minutes after the announcement before fully correcting upwards. The asset has declined for 3 consecutive days and dropped to the lowest price since February 1st.
So what does the latest inflation data mean for the DAX and European indices? The estimated figures are crucial in determining what the ECB will likely decide over the next 2 months. The monetary policy and higher inflation trigger a lower investor sentiment towards the stock market and can pressure prices. Most economists are now likely to lean towards a more hawkish central bank.
This week the European Union has also released positive economic data for various states. The PMI figures from Spain and Italy rose above previous and previously expected figures. In addition to this, the German Unemployment change only increased by 2,000, which is significantly lower than the 9,000 previously predicted. Due to this, the German unemployment rate remained at 5.5%. The positive economic data can be positive for stocks to a certain extent, but only if the monetary policy does not restrict demand.
The price movement of the DAX continues to move in favor of a downward trend since yesterday’s strong decline. The instrument started declining after reaching a new high as the US trading session edged nearer. Economists have advised the decline is in response to the fear of a more restrictive monetary policy. Trend indicators such as moving averages and Bollinger Bands indicate a downward trend. However, investors are monitoring whether the price can be below the 15,178 support level.
DAX Technical Analysis Video
DAX Technical Analysis Video on March 2nd
EUR/USD
The Euro has been increasing in value over the past 24 hours against most competitors, including the Pound, Yen, and Swiss Franc. However, the Euro has looked slightly weaker this morning after strong declines the day before. The price is specifically struggling against the US Dollar, which is seeing bullish price movement against all competitors. The US Dollar Index so far this morning has increased by 0.30%, bringing the index back up to 104.79, and is close to forming a full price correction.
A possibly more hawkish Federal Reserve is also influencing the US Dollar. The two currencies are currently in a tug-of-war which the Dollar is now winning. Analysts also advise that the Dollar’s safe haven status may come into play as global stocks take a hit. The positive economic data from China this week has not been able to provide enough support for stocks to maintain bullish price movements. As a result, declines may drive investors to safe haven assets, which are also paying high-interest rates.
This morning's technical analysis again points to a decline for the EUR/USD. The exchange rate has declined for 16 consecutive hours as the price attempts to return to previous lows. Investors will also be cautious that the price does not find support at the 1.06189 level, 1.05811, and 1.05647.
During this afternoon’s US trading session, investors will monitor the Unemployment claims figure. The claims will have a minimum effect unless we see a drastic change. However, the FOMC member, Mr. Waller, will comment on inflation and interest rates later in the evening. Hawkish comments can support the Dollar further.
Summary:
- Eurostat confirms inflation in the EU is likely to remain higher than previously thought. Estimated CPI figures read 8.5%, and Core CPI figures increased from 5.3% to 5.6%.
- Economists expect higher interest rates across the board, not just for the European Union.
- Euro has increased in value over the past 24 hours but struggles this morning as counter currencies attempt corrections.
- The US Dollar Index again increases in value and experiences significant gains against the Euro.
