THE TAKEAWAY: Euro-zone annual inflation drops to 1.8% in February -> Unemployment reaches an all time high -> Euro fails to react to releases

A spike in Euro-zone unemployment and further decline in inflation had little effect on the Euro, as the single currency was already down on a wave of UK instigated risk aversion in currency markets.

Euro-zone annual inflation was reported at a new 2-year low of 1.8% in February, according to an estimate by Eurostat. The inflation rate was lower than an expected 1.9% rate, and lower than the 2.0% inflation reported in January. Meanwhile, unemployment jumped to 11.9% in January, higher than expectations for unemployment to continue at December’s revised 11.8% rate.

Inflation now sits well within the ECB’s 2% target, and President Draghi said last week that the contained inflation allows the central bank to remain accommodative. Also, January’s unemployment is an all-time high for the Euro-zone, and therefore may curb consumers’ purchasing power. That is why both releases could have been Euro negative.

However, the Euro has declined about sixty points against the US Dollar from the session high on weak PMI’s in the Euro-zone and a wave of risk aversion resulting from a low PMI in the UK. Therefore, the single currency didn’t show significant reaction to the releases, and EUR/USD is trading around 1.3040 at the time of this writing. The pair may continue to find support at 1.3038, by the 38.2% Fibonacci retracement of the pair’s rally from its all time low to its all time high.

EURUSD Daily: March 1, 2013

Chart created by Benjamin Spier using Marketscope 2.0

-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to bbspier@fxcm.com .

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