German Producer prices saw their sharpest contraction since January printing at -0.4% versus -0.2% eyed in sign that energy costs and lackluster demand are having a deflationary impact on PPI. Energy costs saw the largest decline dropping -1.4% on the month while basic goods fell by -0.3%.

Ex-energy German PPI declined by -0.1% on the month increasing only 1.0% on a year over year basis – well below the ECB 2% annual target rate. The lower PPI data suggests that CPI readings in Europe’s largest economy will likely decline as well, providing more latitude for ECB to ease, although the central bank has been reluctant to take aggressive steps on monetary policy despite clear signs of economic slowdown in the region.

The EUR/USD has remained quiet in early European trade sliding to 1.2250 in late Asian dealing only to pop up 15 points on news that Finland ratified the Spanish bailout deal. With no economic data on the calendar for rest of the day, price action will be driven by news from Brussels. Ministers are expected in a conference call to sign off on a lengthy memorandum of understanding (MoU) with Spain spelling out the terms of the aid, which will be fully disbursed by the end of 2013.

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