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EUR/USD coiling in flag on H4 for move through 1.3970

Euro-Zone inflation pressures are neither intensifying nor deflating from their current low levels, which might warrant additional dovish policy action, including non-standard measures such as a large scale asset purchase program. Energy remains the largest drag on headline inflation, at a -1.2% clip in April, which further limits the ECB’s desire to ease imminently; inflation for the sake of inflation will only further erode a weak consumer base’s purchasing power.
The recent uptick in the regional PMI surveys will only underscore the ECB’s policy inertia. The overnight interbank lending rate (EONIA) that we’ve cited numerous times the past few weeks as a potential cause for concern is less of a threat now that it's dipped below the ECB’s reference rate (0.108% (EONIA) versus 0.25% (ECB main refinancing rate).
The May ECB meeting should be nothing more than a placeholder before the Governing Council updates its economic projections at the June meeting. It is worth noting that the banking stress tests are being conducted under the assumption that inflation will not fall any further from here.

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