The German PPI inflation jumped to 2.4% y/y from just 1.0% y/y in the previous month. The uptick was higher than expected and the breakdown confirmed that the turnaround from the firmly negative rates last year was mainly driven by a sharp pick up in energy and basic goods prices. The former jumped to 4.0% y/y from 0.2% y/y in December, while basic goods price inflation rose to 2.4% from 1.1%. Price increases for durable as well as non-durable goods remained pretty stable, and it will take some time for the uptick in energy prices t feed through, but with a tight labour market, the risk of second round effects are higher in Germany than in most other Eurozone countries.
The dollar has traded mixed relative to the main currencies so far today, lifting versus the yen and consolidating Friday’s gains versus the euro and other currencies. USDJPY has traded at moderately firmer levels today after three consecutive down sessions though to Friday last week. EURUSD edged out a 1.0603 low, breaching Friday’s nadir by 2 pips, according to our data. Cable has traded about 20 pips up on Friday’s closing level, holding in the low 1.24s. Trading conditions will be thin today in Europe with North American markets closed and markets still fathoming what net impact Trump’s policies (fiscal expansion, deregulation versus protectionism) will have on the dollar.
The strong PPI failed to hold the EURUSD up over the 20 and 10 period EMA on the 4 hour chart and has prompted a short position from 1.0612 with at target at the 4 hour ATR at 1.0587. The Parabolic SAR remains negative, the RSI is neutral at 47, however, the MACD may be looking to move up. A break over the 50 – 200 period EMA at 1.0650 would suggest further strength today.
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