EURUSD Drops Below Short-Term Trendline

EU inflation remains elevated

According to Eurostat’s final reading of the Eurozone Harmonised Index of Consumer Prices (HICP) report for the month, the inflation rate in the Eurozone increased by 9.9% on an annualized basis in September.

The reading fell short of expectations of 10%. Core numbers increased by 4.8% YoY, which was in line with the 4.8% market expectations and 4.8% last.

HICP for the bloc increased by 1.2% MoM compared to the 1.2% predicted and 1.2% initial estimate.

In contrast to the 1.0% predicted and 1.0% observed, the core HICP values came in at 1.0% monthly.

Energy (+4.19 percentage points, pp) contributed the most to the annual inflation rate in the euro area in September, followed by food, alcohol, and tobacco (+2.47 pp), services (+1.80 pp), and non-energy industrial goods (+1.47 pp).

As for the USD, the Minneapolis Federal Reserve Bank’s Neel Kashkari said earlier in the day that he was “not ready to call a stop to rate hikes” unless he saw “some strong evidence that core inflation has at least peaked.”

The markets are pricing in a nearly 95% chance of the Fed raising interest rates by 75 basis points in November, according to the CME’s FedWatch Tool.

Short-term uptrend over

It looks like the recent rally might have run out of steam as risk assets are rolling over, with EURUSD no exception. The next support is expected at around 0.9750, and if not held, a further decline toward 0.915 could occur.

On the upside, the euro must climb back above the uptrend line (currently near 0.9820) to cancel the bearish momentum.