EURUSD Faces EU CPI, US GDP Conundrum

After mixed flash PMIs suggested inflation pressure was easing in the Eurozone, attention is now on flash CPI to see if it carries through and whether the ECB can keep rates up.

The Sick Man Has Company

Germany, which is forecast to see its recession deepen, surprised with better performance in the flash PMIs last week, doing better than the previously healthier France, which had the worst results since the pandemic. Although the final results still need to be confirmed, the trend could be suggesting that the Sick Man of Europe is contagious. On the one hand, this would imply inflation could come down to target faster. On the other, it might speed up pressure on the ECB to cut rates and further weaken the shared currency.

The inflation reporting cycle starts on Wednesday, with German state-level reports, which build up momentum until the whole country's figure is released. Typically, the market reacts over the course of the state-level data as soon as traders become sufficiently convinced of the trend. German CPI is expected to decrease to 3.4% annually from 3.8%. The next day, France will report its inflation figures and PPI simultaneously. French inflation is expected to also decline, down to 3.7% from 4.0% on an annual basis. The monthly PPI is expected to suggest that price pressures keep abetting, as it's forecast to fall to 0.3% from 0.7%.

Rolling Out the Big Numbers

Following the release of German and French data (Spain also reports the day before), traders typically have a good idea of what the Eurozone will show, so the market only reacts if there is a surprise deviation from the trend set by the larger countries. Euro Area inflation is expected to come down to 2.7% from 2.9%. But the core rate is expected to double the 2% target at 4.1%, ticking down just a decimal from the 4.2% prior. Traders might be worried that slowing demand could be pushing down prices more than slowing increases in the cost of raw materials.

Going back to Wednesday, the US will announce its second reading of Q3 GDP, which is expected to be confirmed at 4.9%. Naturally, a surprise revision, particularly to the downside, could upset markets that are still nervous about the outlook for the American economy. On a more positive note for the bourses, the core PCE price index, which is followed by the Fed for monetary policy purposes, is expected to confirm that it grew at just 2.4% in the third quarter, down from 3.7% prior. That could maintain the thinking that the Fed has gotten price increases close enough to range so that the next action to be taken is a cut. Whether that cut will be sooner than the ECB's will likely be determinant for the course of the EURUSD after the data release.

Double Top Intact Below 1.10

The pair has seen upward momentum taking a breather below the $1.10 round resistance, forming a double top around 1.097. Staying below the peak will likely weigh on prices, shifting the pair into consolidation or a painful reversal. If bulls lose 1.086, the next major support lies at 1.0775. Conversely, the break of 1.10 may lead to 1.105 next.

Source: SpreadEx / EURUSD

Key Takeaways

The EURUSD pair faces a conundrum as an expected easing of inflation in the Eurozone, alongside the potential for US GDP confirmation at 4.9%, could influence the pair's performance. Notably, trends suggest pressure on the ECB to cut and a US price increase slowdown, hinting at a potential Fed cut. The pair's momentum below the $1.10 resistance could lead to a shift in price, awaiting data release outcomes.