While inflation still increasing, Luis de Guindos, ECB Vice-President says that they are prepared to face a technical recession to bring down inflation. This hawkish tone helped the Euro to strengthen to some extent against the USD.
EURUSD remains bearish!
The release of the last week’s US CPI report brought market volatility as many market participants were anticipating high inflation data and reactions have been priced in. Even though the US September inflation exceeded expectations to put extra strain on the Federal Reserve to continue with its policy of monetary tightening, as it was the third consecutive month of decline, also brought some hopes of a slower pace for the contraction process by the Fed.
On the other hand, Eurozone CPI in September was the largest monthly increase since March 2022, at 1.2%, with the annual rate reaching 9.9%, slightly lower than market expectations by 10%, while the previous month’s number was revised down to 9.1%. In terms of core CPI, the final monthly rate and annual rate respectively were recorded at 0.9% (consistent with market expectations and previous values) and 6% (both market expectations and previous values were 6.1%). However, current eurozone inflation remains well above the ECB’s target. In response, Governing Council member Wessler said the central bank should raise interest rates by 75 basis points in each of the next two meetings and start shrinking its balance sheet next year. ECB President Christine Lagarde also delivered a hawkish speech last Wednesday, stressing that interest rate increases are the ECB’s best tool to rein in inflation.
With these data and market estimates, we do not expect any strong support in the short term. however, the USD uptrend also is not so strong. Therefore, EURUSD’s current trend and price behavior should not change so much. Still, 1.000 and 1.035 are the important resistance levels on the upward path, but the big picture remains bearish.