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Sr. Technical Strategist
Eurozone headline inflation has ticked up from 3.8% to 4%, while core inflation holds at 2.5%, in line with expectations. The euro is recovering against the U.S. dollar at the same time, but that rebound stems from dollar weakness rather than from the eurozone inflation data. The split between a rising headline rate and a sticky core rate keeps concern about price pressure in the euro area alive, even as currency traders focus on the dollar side of the pair.
Michael Boutros, StoneX Media Senior Market Analyst, covers currencies, commodities and equity indices, tracking how macro events move price across multiple time frames. That coverage gives insight into how eurozone inflation data and swings in the U.S. dollar feed into the euro's recovery.
Eurozone headline inflation rose from 3.8% to 4%, while core inflation came in at 2.5%, matching expectations. Boutros describes eurozone inflation data "showing an uptick on the headline read with core still pretty sticky there", a mix that keeps price pressure firmly in view. Specifically, the headline rate is climbing while the core reading has not eased. As a result, the eurozone inflation picture adds to concern about increased inflation rather than calming it, giving euro traders one more input alongside moves in the U.S. dollar.
U.S. dollar weakness, rather than eurozone inflation data, is the main force behind the euro's recovery against the dollar. "Euro dollar seems to be mounting a nice little rally here on the back of some dollar weakness," Boutros says, with the pair up nearly 1.5% from its low after a 5.2% slide from its yearly high. The rebound began from a major long-term support zone, and the U.S. midterm election result helped push the pair through the median line of its four-hour pitchfork. Notably, U.S. labor data is a key event risk for the pair, since a weaker jobs print may further weigh on the dollar and limit the Federal Reserve's scope to hike rates.
The euro's recovery against the U.S. dollar is tracked through two sets of signals, eurozone inflation releases on one side and U.S. economic data on the other. The gap between headline and core eurozone inflation shows if price pressure is broadening or holding steady. On the U.S. side, the ADP employment figures, the ISM services PMI and the nonfarm payrolls report with its unemployment rate show how the labor market is shaping the outlook for the Federal Reserve. Market pricing of Federal Reserve rate hikes shows how much tightening is already expected and how sensitive the dollar is to each data release.
--- Written by Frédéric Guétin, StoneX Media Producer
--- Expert: Michael Boutros, StoneX Media Senior Market Analyst
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Eurozone headline inflation is climbing while core inflation holds steady, keeping concern about rising prices alive. Yet the euro is recovering against the dollar mainly because the U.S. dollar is weakening, not because of the inflation data.
The British pound is drawing buying interest into the Bank of England decision while the U.S. dollar trades unevenly across the majors. That bid gives sterling its own driver and sets it apart from a euro that has stalled near resistance.
A U.S. midterm clean sweep is seen as a near-term risk for the dollar if it raises the odds of political gridlock. Strong U.S. data and a Federal Reserve still leaning toward tighter policy give the greenback a sturdier floor underneath.
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