EURUSD Likely to Head Lower After EZ CPI Inflation, As Retrace Is Complete
EURUSD retraced 2.5 cents higher this week but it seems complete, so the downtrend is likely to resume next week, after the economic data from the Eurozone this week and the ECB comments.
The EUR/USD pair briefly dropped to 1.0331 last week following a rise in US PCE inflation but managed to rebound by 2.5 cents as the USD weakened. However, the outlook for the euro remains pressured by a dovish ECB stance and weak economic performance in the Eurozone. Recent PMI data from Germany and France showed readings below the 50-point threshold, signaling a contraction in the services sector during November and raising concerns about an impending Eurozone recession.
On Friday we have the CPI report and the headline consumer inflation jumped to 2.3% but core CPI remained unchanged. Market expectations for a significant ECB rate cut in December remain low, with only a 20% probability priced in. Meanwhile, JPMorgan has suggested a different approach, calling for a 50 basis point hike to bring the deposit facility rate up to 3.25% from its current level of 2.75%.
EUR/USD Chart Daily -The 20 SMA Will Likely Act As resistance
Preliminary Eurozone core CPI data for December came in at 2.7%, slightly below the 2.8% forecast, while the headline figure rose from 2.0% to 2.3%. ECB member François Villeroy commented on the data, emphasizing that inflation is slowing and aligning with the central bank’s targets. He expressed optimism that the ECB’s inflation goal could be reached in 2024, likely within the first half of the year. This reinforces the ECB’s narrative of gradual rate reductions while balancing concerns about economic weakness in the region.
Eurozone November Preliminary CPI by Eurostat – 29 November 2024
Headline CPI:
- November: +2.3% y/y (in line with expectations).
- October: +2.0% y/y.
- Headline inflation rose slightly, likely due to base effects.
Core CPI:
- November: +2.7% y/y (slightly below the expected +2.8%).
- October: +2.7% y/y (unchanged).
- Services inflation eased marginally, from 4.0% in October to 3.9% in November.
- Implications:
- The steady core inflation figure reaffirms expectations for a 25 bps rate cut by the ECB next month.
- The disinflationary trajectory in the Eurozone remains uneven, but policymakers appear committed to loosening monetary policy further.
Germany October retail Sales Released by Destatis – 29 November 2024
Germany October Retail Sales
- Retail Sales:
- October: -1.5% m/m (a sharp miss compared to the expected -0.3%).
- September: Revised higher to +1.6% m/m (from +1.2%).
- Key Drivers:
- Non-food retail trade fell significantly, down -2.2% m/m in October, contributing to the overall decline.
- Context and Outlook:
- Despite stronger retail performance toward the end of Q3, this contraction highlights the ongoing struggles of German consumers heading into the holiday shopping season.
- The data underscores headwinds for Germany’s economy amid broader Eurozone challenges.
The Eurozone’s inflation data and Germany’s retail sales reveal a weak economic picture. Inflation trends align with expectations for further ECB rate cuts, Germany’s retail struggles emphasize the fragility of consumer demand, raising concerns as the year-end approaches.
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