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Euro Remains in Demand Despite Declining Inflation in Europe

The Eurozone economy has seen some rapid deterioration this year, and the ECB has increased its dovish remarks, but EUR/USD has been pushing higher in recent weeks. Buyers were struggling to maintain the bullish momentum as we approached the 1.10 zone, but this week they finally broke above that major level and remain in control now.

Buyers are pushing the EUR/USD pair higher, pushing the range to the upside, and showing strong bullish momentum as it moves above major levels. To maintain the pair’s upward momentum, first of all it would require the US Dollar to remain weak. It must stay above the important zone of 1.10 and above at 1.0960. Dropping below this level, particularly towards the swing region low around 1.0940, might erode the EUR/USD present positive optimism. So, if sellers fail to push the price down there, buyers continue to remain in control.

Today we had the CPI (consumer price index) inflation report from Spain and Germany for this month, with expectations of the German consumer inflation ticking lower, while the Spanish CPI is expected to tick higher to 3.6% from 3.5% previously.

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Spanish November Flash CPI Inflation

  • November preliminary CPI +3.2% vs +3.7% y/y expected
  • October CPI was +3.5%
  • HICP +3.2% vs +3.7% y/y expected
  • Prior HICP  was +3.5%

The surprisingly softer readings here are very much a welcome development for the ECB. That alongside core annual inflation, which is seen slowing to 4.5% this month – its lowest since April 2022.

German November Flash CPI Inflation

  • Bavaria November CPI +2.8% vs +3.7% y/y prior
  • Hesse CPI +2.9% vs +3.6% y/y prior
  • Brandenburg CPI +3.4% vs +4.6% y/y prior
  • Baden Wuerttemberg CPI +3.4% vs +4.4% y/y prior

All of this is pointing to a much, much softer inflation reading in Germany for the month of November. And in all likelihood, we should see the national reading come in well below the 3.5% estimate as well as the 3.8% reading from October. It seems like we are likely to see something near 2.9% by my estimation.

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Skerdian Meta
Lead Analyst
Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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