Consumer prices in the 19-nation euro area are falling for the first time in four years, the consumer prices are projected to fall to -0.2% in August, down from 0.4% in July, and turning to negative for the first time in four years, the bloc’s statistic office announced Tuesday. A flash estimate of Euro stat showed the figure well below market expectations of a 0.2% rise.

Looking at the main components of euro area inflation, food, alcohol, and tobacco are expected to have the highest annual rate with 1.7% in August, compared to 2% in July. These followed by services with 0.7%, non-energy industrial goods -0.1%, and energy with -7.8%.

The European Central Bank had warned that inflation would weaken, but the negative reading will still sound the alarm for policymakers who have tried to soften the shock unleashed by the corona virus.

“This is a serious issue for the ECB,” said Nick Kounis, an economist at ABN Amro Bank NV. “We’re clearly seeing pretty aggressive disinflation, and there’s plenty more to come. Unemployment is on the way up, wage growth is coming down, and there’s going to be a lot of spare capacity in the economy for a long time to come.”

The risk for the ECB is that the price picture doesn’t improve. In a warning sign for what lies ahead, a separate release from IHS Markit showed that European factories lowered prices for a 14th straight month amid sluggish demand. They also cut jobs, and reduced inventories of raw materials and semi-manufactured stocks instead of ordering supplies. These catalysts makes the Euro to drop.

Whereas, White House Chief of Staff Mark Meadows stated that Senate Republicans were ready to take up their corona virus aid bill with $500 billion of additional aid. U.S. House Speaker Nancy Pelosi stated that Democrats and Republicans still had serious differences. While it remains to be seen whether the two sides will manage to reach a consensus, the return of the stimulus topic into the news flow provided additional support to the U.S. dollar.

EUR/USD 4 Hour Chart:

Support: 1.1806 (S1), 1.1761 (S2), 1.1699 (S3).

Resistance: 1.1912 (R1), 1.1974 (R2), 1.2019 (R3).

Amidst all the catalysts depressing Euro against the greenback, we expect a bearish trend for EUR/USD.