Tuesday European Fundamentals Focus: German/eurozone ZEW and U.K. CPI

[imperialfxonline]

U.K. CPI data will be released at 09:30GMT on Tuesday, 16th February, to be followed by ZEW economic sentiment and current conditions indices at 10:00GMT, these releases are likely to affect the sterling and euro ahead of the New York session.

Inflation in the U.K. outpaced economists' expectations in December with an annualised increase of 2.9%, and the market median forecast for January's year-on-year CPI is 3.8%, which would push the rate above the 3% upper threshold and require Bank of England Governor Mervyn King to write a explanatory letter to Chancellor Alistair Darling. The month-on-month increase is predicted to be around 0.1%.

Although a rise in inflation risk will be of concern to the Monetary Policy Committee, the latest quarterly inflation report saw the Bank of England take a less bullish tone on the economic recovery prospects for the U.K. in 2010, with the MPC expecting the inflation to cool down as we head into mid-2010, meaning that any benefit that sterling will get from stronger-than-expected data may be short-lived.

On the other, the German and eurozone ZEW economic sentiment indices are forecast to fall for the fifth consecutive month in February, from 47.2 to 43.2 and 46.4 to 41.5 respectively, as persistent concerns over Greece and other eurozone countries troubled by high debt weigh on business confidence in Europe.

A more bearish outlook for eur/usd (as well as eur/gbp and eur/jpy) would be triggered if either or both German and eurozone ZEW indices come in at or below the 40 level as the increase of risk aversion should push the single to a 9-month low agains the dollar.


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