The German Preliminary Consumer Price Index (CPI) month-over-month (m/m) is one of the most closely watched economic indicators in the forex market, particularly for traders focusing on the Euro (EUR). As the largest economy in the Eurozone, Germany’s inflation data has a significant impact on the European Central Bank’s (ECB) monetary policy decisions, which in turn influence the Euro’s value. This article will analyze the upcoming German Prelim CPI m/m release on February 28, 2025, based on historical data, current predictions, and the potential technical and fundamental impact on the EUR.
Previous Figures and Historical Context
The German Prelim CPI m/m measures the change in the price of goods and services purchased by consumers in Germany compared to the previous month. It is a key indicator of inflationary pressures in the economy. Below is a summary of recent data:
January 2025: +0.3% (Actual)
December 2024: +0.2% (Actual)
November 2024: -0.1% (Actual)
October 2024: +0.1% (Actual)
The data shows a gradual increase in inflationary pressures in Germany, with January 2025 marking the highest monthly increase in the past four months. This upward trend suggests that inflationary pressures are building, which could influence the ECB’s monetary policy stance.
Current Predictions for February 2025
For the February 2025 release, market analysts are predicting a +0.4% m/m increase in the German Prelim CPI. This prediction is based on several factors:
Energy Prices: Rising energy costs, particularly in natural gas and oil, are expected to contribute to higher inflation.
Supply Chain Disruptions: Ongoing supply chain issues, particularly in the automotive and manufacturing sectors, are likely to push prices higher.
Wage Growth: Strong wage growth in Germany, driven by labor shortages in key sectors, is expected to increase consumer spending and inflationary pressures.
If the actual figure meets or exceeds the forecast, it could signal stronger inflationary pressures in the Eurozone’s largest economy, potentially prompting the ECB to consider tighter monetary policy.
Fundamental Analysis
Impact on the ECB’s Monetary Policy
The ECB has been closely monitoring inflation data to determine the appropriate course of action for interest rates. The German Prelim CPI is a leading indicator of Eurozone inflation, and a higher-than-expected reading could increase the likelihood of the ECB raising interest rates sooner than anticipated. Higher interest rates typically strengthen the Euro, as they attract foreign capital inflows seeking higher returns.
Eurozone Inflation Trends
Germany’s inflation data often sets the tone for the broader Eurozone. If the German Prelim CPI comes in higher than expected, it could lead to upward revisions in Eurozone inflation forecasts. This would reinforce the case for a more hawkish ECB, further supporting the Euro.
Global Economic Context
In the global context, the Euro’s strength will also depend on the relative performance of other major economies, particularly the United States. If the U.S. Federal Reserve maintains a dovish stance while the ECB tightens policy, the Euro could see significant gains against the U.S. Dollar (USD).
Technical Analysis
EUR/USD Key Levels
Support Levels: 1.0800, 1.0750, 1.0700
Resistance Levels: 1.0900, 1.0950, 1.1000
Scenario 1: Higher-Than-Expected CPI (e.g., +0.5% or above)
Immediate Reaction: A higher-than-expected CPI reading would likely trigger a bullish reaction in the EUR/USD pair. Traders would anticipate a more hawkish ECB, leading to a surge in demand for the Euro.
Price Action: The EUR/USD could break through the 1.0900 resistance level and target 1.0950 or even 1.1000 in the short term.
Momentum Indicators: The Relative Strength Index (RSI) would likely move into overbought territory (above 70), indicating strong bullish momentum.
Scenario 2: Lower-Than-Expected CPI (e.g., +0.2% or below)
Immediate Reaction: A lower-than-expected CPI reading would likely lead to a bearish reaction in the EUR/USD pair. Traders would interpret this as a sign that inflationary pressures are easing, reducing the likelihood of an ECB rate hike.
Price Action: The EUR/USD could fall toward the 1.0800 support level, with a potential break below targeting 1.0750.
Momentum Indicators: The RSI would likely move toward oversold territory (below 30), indicating bearish momentum.
Scenario 3: In-Line with Expectations (e.g., +0.4%)
Immediate Reaction: If the CPI reading meets expectations, the market reaction may be muted. Traders would look for additional clues in the ECB’s statements and other economic data.
Price Action: The EUR/USD could remain range-bound between 1.0800 and 1.0900, with traders awaiting further direction.
Conclusion
The German Prelim CPI m/m release on February 28, 2025, is expected to have a significant impact on the Euro, particularly against the U.S. Dollar. A higher-than-expected reading could strengthen the Euro, as traders anticipate a more hawkish ECB. Conversely, a lower-than-expected reading could weaken the Euro, as it would reduce the likelihood of near-term rate hikes.
From a technical perspective, the EUR/USD pair is poised for a breakout depending on the CPI data. Traders should watch key support and resistance levels, as well as momentum indicators like the RSI, to gauge the market’s reaction.
In summary, the German Prelim CPI m/m is a critical event for forex traders, and its impact on the Euro will depend on both the actual data and the broader economic context. Traders should prepare for potential volatility and adjust their strategies accordingly.