The Euro fell to 1.122 from 1.128, or more than half a percentage point, after news reports claimed that the European Central Bank would reduce its inflation forecast due to falling oil prices. Long Euro is probably the most crowded trade in world markets, and ECB President Mario Draghi wants to punish speculators who are betting that German disgruntlement with negative interest rates will force the ECB to back out of its aggressive monetary ease.

Headline inflation, though, is not now and has never been the subject of contention. Headline inflation in Germany is pretty much a function of oil prices, and a simple econometric model predicting German CPI changes based on lagged changes in the oil price captures most of the change in the headline number. It also shows that German headline CPI will settle around 1.5%-1.6% YOY if oil prices remain unchanged, as shown in the accompanying chart.

That’s not what concerns the Germans, though. As the German financial daily Handelsblatt reported May 31, rents in the six largest German cities have risen by 50% during the past 10 years, and that’s 45% more than the increase in disposable income. Negative yields on government bonds through the five-year maturity have left German savers in a tough place, and real estate (directly or through real estate investment trusts) has become the bond-substitute of choice. That’s produced something of a bubble in German real estate prices. Rising rents are a hot political issue in Germany, and negative interest rates are to blame.

German Chancellor Angela Merkel and her economic team won’t put pressure on Draghi during the next several months in the advent to September’s national elections. Merkel almost certainly will win a fourth term, and probably in combination with the pro-business Free Democratic Party. German pressure to phase out negative interest rates and quantitative easing will begin in earnest later this year.

Italy with its $2.2 trillion debt load has been the biggest beneficiary of quantitative easing (because the ECB buys a lot of Italian government bonds), and Italian bond yields have been creeping up gradually in anticipation of a policy shift. With Emmanuel Macron likely to have a strong mandate (including a majority in the French National Assembly) for economic reforms, Germany will have a reliable partner in France, and Italy will be the odd man out.

The Euro probably will be 10% stronger a year from now, but the ECB may burn the Euro shorts several times before the inevitable adjustment occurs. Patient investors should stay long Euro, but the speculative waters will be treacherous through the summer.