Euro area headline and core December inflation (Tuesday) will be the focus for the EUR, both are expected to increase slightly, to 0.4% y/y (last: 0.2%) and 1.0% y/y (last: 0.9%), respectively, but remain well short of the ECB's objective of achieving annual inflation below, but close to, 2%. It is believed that the ECB's December meeting rhetorical misfire and subsequent EUR REER appreciation of more than 3% come at a longer-term cost to the EUR.
With core inflation and market measures of inflation expectations remaining extremely low (the EA 5-year forward, 5-year break-even inflation rate is currently below 1.7%, versus above 1.8% in early December), longer or greater policy accommodation is likely to weigh heavily on the EUR this year.
Final euro area December PMIs will also be released this week, including manufacturing (Monday; consensus: 53.1; flash: 53.1; last: 52.8), services (Wednesday; consensus: 53.9; flash 53.9; last: 54.2) and the composite (Wednesday; consensus: 54.0; flash: 54.0; last: 54.2).
