EUR/USD falls back as US CPI inflation data comes in above expectations

VaselineOctober 10, 2024

0 4 minutes read

EUR/USD falls back as US CPI inflation data comes in above expectations

EUR/USD tested lower on Thursday, finding the 200-day EMA.
Euro data remains weak this week, leaving Fiber to use US data.
Friday: US PPI inflation, UoM consumer sentiment figures.

EUR/USD managed to maintain a finger grip on the chart north of the 1.9000 handle. The fiber eased, but only recovered enough to pull back from a deeper test of the 200-day exponential moving average (EMA) near the 1.0900 handle.

U.S. headline CPI inflation fell less than expected in the year ended September, falling from 2.5 percent to 2.4 percent. Median market forecasts called for a print of 2.4% per year. On the other hand, core U.S. CPI inflation rose more than a year ago in September, rising to 3.3% from 3.2% previously.

U.S. initial jobless claims rose unexpectedly in the week ended Oct. 4, climbing to 258,000 week-on-week and cutting the largest rate of new jobless claims since June 2023.

Mixed rate impact data unsettled bond markets on Thursday. Rising unemployment figures bolster hopes for interest rate cuts as the Federal Reserve (Fed) seeks to keep the US labor market afloat, while still-hot inflation makes it difficult for investors to expect a faster pace and the deepening of rate reductions.

Significant European economic data is almost entirely absent on Friday, leaving Fiber traders at the mercy of global Greenback flows to end the trading week.

US producer price index (PPI) inflation will continue during the US market session. September’s core PPI print for the year ended September is expected to accelerate to 2.7% from last month’s 2.4%.

The University of Michigan’s 5-year consumer inflation expectations for October will also be printed on Friday, along with the UoM consumer sentiment index. The UoM sentiment index is expected to rise to 70.8 from 70.1, while 5-year consumer expectations failed to beat a forecast, although the gauge edged higher in the previous month.

EUR/USD Price Forecast

EUR/USD is trading around 1.09343, down a slight 0.05% on the day as selling pressure continues to weigh on the currency pair. Price action is testing the 200-day exponential moving average (EMA) at 1.09036, a critical support level that could determine the pair’s next directional move. A break below this level could accelerate the downward momentum, potentially opening the door for further declines towards the 1.08500 level, a key psychological barrier. The 50-day EMA, currently at 1.10289, has now become a resistance level after the recent bear breakout below it.

The general trend seems to be towards a more bearish outlook in the near term. The sharp decline from recent highs near 1.1200 indicates that the bullish momentum has largely disappeared. The price has consistently printed lower highs and lower lows, signaling a clear downtrend. Traders will likely watch how the pair reacts around the 200-day EMA in the coming sessions, as a sustained move below this level could confirm a broader shift in market sentiment to the downside.

In a broader context, EUR/USD price action reflects a market that is increasingly sensitive to economic data releases and central bank decisions. The pair’s recent decline coincides with a stronger US dollar, driven by expectations of tighter monetary policy from the Federal Reserve. Eurozone economic data such as inflation and growth figures will be key to determining whether the euro can find support at current levels or whether further downside risks will materialise. Traders should be on the lookout for any signs of a reversal, but for now, the technical setup points to further weakness.

EUR/USD daily chart

Frequently asked questions about the euro

Euro is the currency for the 19 countries of the European Union that belong to the Eurozone. It is the second most heavily traded currency in the world after the US dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion per day. EUR/USD is the most traded currency pair in the world, representing an estimated discount of 30% on all trades, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

The European Central Bank (ECB) in Frankfurt, Germany is the reserve bank for the euro area. The ECB sets interest rates and manages monetary policy. The ECB’s main mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its main tool is raising or lowering interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the euro and vice versa. The Governing Council of the ECB takes monetary policy decisions at meetings held eight times a year. Decisions are taken by the heads of national banks in the euro area and six permanent members, including ECB President Christine Lagarde.

Eurozone inflation data, as measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric element for the euro. If inflation rises more than expected, especially if it exceeds the ECB’s 2% target, it forces the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its peers will typically benefit the euro as it makes the region more attractive as a place for global investors to park their money.

Data releases measure the health of the economy and can have an impact on the euro. Indicators such as GDP, manufacturing and services PMI, employment and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the euro. Not only does it attract more foreign investment, it may encourage the ECB to raise interest rates, which will directly strengthen the euro. Otherwise, if the economic data is weak, the euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are particularly significant as they account for 75% of the euro area economy.

Another important piece of information for the euro is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports in a given period. If a country produces highly sought-after exports, then its currency will only gain in value from the additional demand created by foreign buyers wanting to purchase these goods. Therefore, a positive net trade balance strengthens a currency and vice versa for a negative balance.

VaselineOctober 10, 2024

0 4 minutes read

EUR/USD Price Forecast

EUR/USD daily chart

Frequently asked questions about the euro

Vaseline

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