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Release Explanation: CPI measures the average price of a fixed market basket of goods and services purchased by consumers, and therefore give an overall read of Inflationary pressures. It is the most widely used Inflation indicator of Central Banks, Institutions, and Governments. It is used to calculate Cost of Living numbers for Government programs. “Each regional Central Bank will have their own CPI Target rate, and each will differ in line with the way they individually want to control the aspects of their own economies,” TheLFB-Forex.com Trade Team said.
TheLFB-Forex.com Trade Desk Thoughts: Euro-area May inflation, as measured by the Flash estimate, dropped to 0.0%, the lowest level on record. Over the last few months, the inflation gauge has dropped sharply, reflecting tougher credit conditions and the rather huge declines in the commodity markets. However, the CPI Flash Estimate does not provide a detailed breakdown of the sub-indexes.
“Currently, estimates are that the CPI read is heading even lower. European officials have said a number of times that they do not expect to see deflation in the Euro-area, but do expect very low reads, even negative ones, which will probably materialize over the coming months. However, Mr. Trichet specified that such fluctuations are irrelevant for monetary policies” TheLFB-Forex.com Trade Team said.
Forex Technical Reaction: The euro rose sharply during the overnight session, gaining almost 120 pips. Just before the release, the euro managed to break above TheLFB R1 (1.4015), which acted as a resistance during the European session.
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