THE TAKEAWAY: German annual inflation confirmed at a two year low of 1.4% -> Lower prices allows the ECB to remain accommodative -> Euro trading unchanged

German annual inflation was confirmed to have fallen to a new 2-year low in March, according to a final consumer price index released by the Federal Statistical Office. Consumer prices rose 1.4% since March 2012, unchanged from a previous estimate and down from the 1.5% inflation rate seen in February. Consumer prices rose 0.5% over the month of March.

The lower inflation rate was mainly due to falling prices of mineral oil products, of which motor fuel prices fell 6.7%, according to the Federal Statistical Office. However, electricity prices rose by 12.4% annually, balancing out to only a 0.5% rise in energy prices. Food prices rose 3.7% since March 2012.

The new low in German inflation reflects the 2-year low Euro-zone wide inflation rate announced at 1.8% in February. The ECB predicts inflation will remain below its 2% inflation target over the coming months, which allows the central bank to remain accommodative in its policy. Therefore, further declines in Euro-zone inflation are Euro negative.

However, the Euro did not react significantly to the confirmation of the inflation rate in Germany. The Euro set a monthly high against the US Dollar in yesterday’s trading, before declining and ending a six day rally in the pair. EUR/USD may now see resistance at 1.3191, by the 50% Fibonacci retracement of the rise from the November low to the February high. Support might be provided by the key 1.3000 figure.

EURUSD Daily: April 11, 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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