- In its best daily performance in months, the EUR/USD pair jumped to a two-month high of 1.0887 on the back of lower-than-expected US inflation data and improving German sentiment.
- Recently, the pair had already reached the 1.08 resistance level, where it spiked sharply after the data showed that US consumer price inflation rose 3.2% year-on-year in October.
- Obviously, this data came below the market-expected figure of 3.3% and represents a sharp slowdown from the September reading of 3.7%.
US Core Inflation Still High
However, CPI inflation was flat month-on-month, down from September's 0.4% advance boosted by energy and below expectations for 0.1%, reinforcing the narrative that the US Federal Reserve has done enough to bring inflation back to its 2.0% target. Also, money market pricing reveals that investors are now assigning less than a 10% chance that the Fed will raise US interest rates beyond the current range of 5.25% to 5.50%. furthermore, the odds of another rate hike by January were as high as 28% before the inflation report, and the market is now fully pricing in the Fed's first cut at its June 24 meeting.
The all-important core US inflation figure for the CPI was 4.0% on an annual basis in October, below expectations for an unchanged reading of 4.1% from September. Moreover, the monthly core reading was 0.2%, down from 0.3% in September, which is also what the market was looking for. Although core inflation – which strips out variables and gives a better understanding of domestic inflationary trends – remains high, it nevertheless appears to be trending downward.
Consequently, market bets on another Fed rate hike immediately fell, and investors made their predictions about the timing of a possible first rate cut. US bond yields fell in response, boosting demand for stocks and reducing demand for the dollar. With US inflation numbers looming, the Euro has been outperforming, thanks to better-than-expected economic numbers from Germany.
Commenting on this, Fouad Razaqzadeh, an analyst at City Index, says: “The EUR/USD pair and all other major euro currencies rose this morning, finding support from slightly stronger euro zone data and the overall positive risk tone across the financial markets that we have seen in recent days.”.
While investors' assessment of the current situation remained at very poor levels, they nevertheless turned optimistic about the future of the German economy. Thus, this indicated by the latest ZEW survey, which was based on the opinions of about 300 German institutional investors and analysts. Also, they became more optimistic about the eurozone's future compared to the previous month. Recently, the euro has risen against the dollar in recent weeks, as investor sentiment toward the Eurozone economy - especially Germany's economy - has reached its lowest levels. Finally, with expectations so low, even the slightest improvement in data could boost euro zone bond yields and the euro rate.
EUR/USD Today Expectations and Analysis
All the important levels for bulls to begin controlling the direction of the EUR/USD, which we mentioned in the recent technical analyses of the currency pair have been reached. Thus, according to the performance on the daily chart below, breaking the general downward trend has become clear. Also, the shift to the upside will be confirmed by moving towards the psychological resistance level 1.1000. therefore, EUR/USD may move towards it if the rest of the US economic data numbers come in less than expectations. Today, the producer price index reading, a measure of inflation, and retail sales numbers will be announced. On the other hand, over the same period, upward hopes will evaporate if the EUR/USD pair returns towards the support level of 1.0660 again.
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