Headline inflation in the Euro Area hit another record high in June with soaring energy prices again driving the move higher. Inflation hit 8.6%, compared to estimates of 8.4% and a prior month’s reading of 8.1%. Core inflation – less energy and food prices – dipped to 3.7% in June from 3.8% in May.

Looking at the main components of Euro Area inflation, energy is expected to have the highest annual rate in June (41.9%, compared with 39.1% in May), followed by food, alcohol & tobacco (8.9%, compared with 7.5% in May), non-energy industrial goods (4.3%, compared with 4.2% in May) and services (3.4%, compared with 3.5% in May).

The unwanted rise in inflation will continue to keep the pressure on the European Central Bank (ECB) to hike interest rates aggressively in the coming months, despite sharply slowing growth across the single block. Market expectations are for around 150 basis points of ECB rate hikes this year.

The five-minute EUR/USD chart shows a small move higher post-release being pulled back. EUR/USD hit 103.83 on Thursday, just 33 pips off its recent low and just 50 pips off levels last seen in January 2017.
 

EUR/USD Five-minute Price Chart

(Click on image to enlarge)

Retail trader data show 66.70% of traders are net-long with the ratio of traders long to short at 2.00 to 1. The number of traders net-long is 5.54% lower than yesterday and 2.80% higher from last week, while the number of traders net-short is 0.17% higher than yesterday and 3.39% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/USD prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current EUR/USD price trend may soon reverse higher despite the fact traders remain net-long.

What is your view on the Euro – bullish or bearish?