EURUSD Headed to 1.10 After Eurozone Inflation

EURUSD retreated lower after multiple failed attempts to break the 1.12 resistance zone. Yesterday, the pair dropped by 1 cent, marking another unsuccessful test. Contributing to this downward trend was Federal Reserve Chair Jerome Powell, who signaled resistance to a further 50 basis point rate cut in November. At the same time, ECB President Christine Lagarde’s dovish comments, following lower CPI inflation readings from major European economies, have also weighed on the euro.

With inflation slowing across Germany, Italy, Spain, and France, a further decline in Eurozone CPI for September was widely expected. The forecast for the Eurozone’s headline CPI is 1.9% year-over-year, down from previous levels, while core CPI is predicted to remain stable at 2.8% year-over-year. Given weak PMI data and the soft inflation figures from France and Spain, markets have already priced in another 25 basis point rate cut by the ECB in October. In fact, this trend of rate cuts is expected to continue, with a 25 basis point reduction anticipated at each meeting until June 2025.

EUR/USD Chart H4 – The Triangle Is Broken

On the H4 chart above we see that EUR/USD has been making lower highs, supported by moving averages, showing buying pressure. However, this hasn’t been followed by higher highs, as the price has been finding strong selling pressure around the 1.12 level. So, a triangle was forming, which is being broken now.

Eurozone September CPI Inflation Report

• September preliminary CPI: +1.8% y/y (in line with expectations), showing a decline from the August CPI of +2.2%.
• Core CPI: +2.7% y/y (as expected), down slightly from the prior Core CPI of +2.8%.
• The drop in headline inflation indicates easing price pressures, but inflation remains elevated, particularly in core components, which exclude volatile items such as energy and food.
• The consistent core inflation figure highlights persistent underlying cost pressures in sectors like services and housing.
• This inflation data aligns with recent trends of softening price growth, and it may be insufficient for the ECB to deliver another rate cut in October

The headline annual inflation rate has fallen below 2% for the first time since 2021, as expected, indicating easing price pressures. However, core inflation only slightly reduced to 2.7%, highlighting persistent inflation, especially in services. This ongoing rise in services inflation keeps core inflation a central concern for policymakers. Despite these developments, the data is unlikely to shift market expectations for an ECB rate cut in October, which is already anticipated. ECB member Olli Rehn’s recent comments also support the likelihood of further rate adjustments.

EUR/USD Live Chart