At 09.00 GMT we get the flash read for Eurozone inflation
Peter Praet set the tone last week when he said that the ECB governing council will have to take into account the increased inflation risk
The comment was one of the factors that sank EURUSD down through 1.1450, though it was amid the fallout from China last week
Inflation in the Eurozone is expected to drop to 0.1% from 0.2% y/y and the core down the same amount to 0.9%
The risk is that we see inflation fall more than expected and that will likely get the market thinking about the ECB ramping up QE. That effect might be magnified as we have the ECB governing council meeting on Thursday. While they are unlikely to change anything at the meeting they exercise their jawbones in talking about fighting "disinflation"
Inflation expectations had started picking up in the consumer sentiment reports but they dipped in the last one and that's also going to be a factor
We have seen inflation on the rise through most of this year but the question is whether this is a bounce of the dead cat variety. The bounce in oil from the Jan low might start filtering through into inflation at some point soon, though might it still might be a little early to see that. That will be temporary anyway as we've slid back down since May. It's also more difficult to judge the oil effect as the secondary effects are till working their way through
Eurozone HICP & core y/y
The long and short is that Europe is probably still a long long way from getting out of the woods on prices and that's going to weigh on the euro. I'm going to take a small short in EURUSD to hold over the inflation numbers in case they are softer. I might add a bit more if German retail sales beat expectations and lift the euro a little higher
