EUR/USD has fallen to its lowest level in 9 years before the CPI Flash Estimate y/y release. The common currency sank as deep as $1.1842, its lowest since March 2006. Traders said some sell stops were triggered after the currency broke below Monday’s trough of $1.1861. Data due at 1000 GMT is expected to show consumer prices in the euro zone fell in December year on year, the first such drop since 2009. “The data should be supportive of expectations for ECB QE operations to begin in January. We remain short EURUSD heading into this data,” analysts at BNP Paribas wrote in a note to clients, referring to quantitative easing or a wide scale bond buying program.
As you can see in the above screenshot, EUR/USD H1 is showing bullish divergence a few hours ahead of EUR CPI Flash Estimate y/y Release. Bullish divergence means EUR/USD is all primed to bounce back up from this 9 year low level. December’s preliminary Eurozone CPI data is in focus in European trading hours. The benchmark year-on-year inflation rate is expected to drop into deflationary territory for the first time since November 2009, reflecting a 0.1 percent decline. While the trajectory of price growth readings has undeniably pointed lower for some time, realized outcomes relative to expectations have actually improved over recent months. That suggests analysts may be overestimating the severity of the slide into deflationary territory, opening the door for an upside surprise. Such a result may cool ECB stimulus expansion bets, boosting the Euro as prices test pivotal chart support.