Summary:

• Eurozone core inflation came in at 1.2% in July and beat a forecast
• Unemployment rate lowered from 9.3% to 9.1%, more than expected
• Euro rises on the data, moves are limited though

The inflation reading from Eurozone turned out to be in line with an estimation at 1.3% while the core gauge came in at 1.2% beating the consensus placed at 1.1% in annual terms. Releases above anticipations could have been expected following the German inflation report revealed on Friday. For that reason a more noticeable rises on the euro could be contained to some extent.

Inflation trends in the Eurozone improved in the passing month which could be a reassuring sign for the ECB. Source: Bloomberg, XTB

Higher inflation across the Eurozone (a higher reading in Germany and in line with expectations in Italy) could be seen favorably for the euro as the ECB could be more tolerant with regard to an extended upward move in the exchange-rate. However, even as inflation seems to gather momentum, there is still quite a long way to get the inflation objective placed just under 2%.

Moreover, the jobless rate in the Eurozone declined from 9.3% to 9.1% in June which suggests that the labor market is getting tighter. Nevertheless, in that respect wage dynamics are much more relevant for the sake of the ECB’s policy, hence if there is a pick-up in wage growth, it could lead to higher inflation, thereby the stronger euro going forward.

The EURUSD is gaining following the data, however upward moves could be contained as higher inflation could have been already priced in after the German figures. Source: xStation5

The common currency is gaining a foothold after the inflation and labor market data. Taking a look at the short-term view there is space for the pair to approach 1.1760.