Final eurozone inflation data for January, was confirmed at a 16-month low, giving the European Central Bank (ECB) leeway for resuming rate cuts. The Euro Fx Futures (6E) retreated amid the inflation data, dipping into negative terrain in the early New York session but has staged a marginal recovery since then.
Inflation Abates: The euro area annual inflation rate, measured by the harmonized index of consumer prices (HICP) was at 1.7% in January, slowing from 2% in December and from 2.5% in the year-ago period, according to the final report released by Eurostat on Wednesday. The January inflation rate aligned with the consensus estimate and the preliminary reading.
Energy products dragged down prices by about 0.4 points, while services prices were the biggest contributor to the price rise, adding 1.45 points. Food, alcohol and tobacco contributed about half a percent point and non-energy products about one-tenth of a percentage point.
Source: Eurostat
The European Union (EU) witnessed annual inflation of 2% in January compared to 2.3% in December and 2.8% a year earlier.
The core annual inflation, as measured by the HICP, excluding energy, good, alcohol and tobacco, climbed 2.2% for the euro area, aligning with expectations. The core reading fell 1.1% MoM compared to the 2.3% increase expected by economists.
On a month-over-month (MoM) basis, the euro area’s CPI fell 0.6%, slightly more than the 0.5% fall forecast, and EU’s was down by a more modest 0.4%.
German Q4 Growth Confirmed: The fourth-quarter year-over-year (YoY) GDP growth for Germany, the euro area’s largest economy, was confirmed at a price and calendar-adjusted 0.4%. This marked a slight acceleration from the 0.3% growth witnessed in the third quarter but it came in line with expectations.
Compared to the previous quarter, the German economy grew 0.3%, aligning with the consensus, but a pick in pace from the stagnation witnessed in the third quarter.
The GDP growth for 2025 was also confirmed at 0.2%.
Policy Implications: With euro area’s annual inflation at multi-year low and the monthly rate suggesting deflation, and Germany’s growth not accelerating strongly, the odds are stacked up in favor of a rate cut at the ECB’s next monetary policy meeting scheduled for March 18-19.
Euro Futures Rangebound: The dovish bias is negative for the 6E contract but positive for equities and bonds. A prudent approach is to sell into 6E’s strength, while also watching the U.S.-Eurozone rate divergence.
Source: TradingView
A look at the daily chart shows the 6E contract trading between its 50-day simple moving average (SMA) at 1.1803 and a key support zone near 1.1758. If downside pressure intensifies and this support area gives way, the contract could extend losses toward the 200-day SMA at 1.1671.
On the upside, strong resistance is seen around 1.1869, a level that has capped advances on multiple prior attempts. A decisive break above this barrier would signal a range breakout and shift the near-term bias to the upside.
Conversely, a sustained move below 1.1758 would open room for a corrective pullback toward deeper support.
If price continues to oscillate within the 1.1758–1.1869 band, the setup favors a mean reversion approach — selling near the upper boundary around 1.1869 and buying near the lower boundary around 1.1758, while the range structure remains intact.
