EUR/USD extends losses, eyes German inflation

• German consumer confidence decelerates
• German inflation expected to fall to 4.6%

The euro has extended its losses on Wednesday and has declined close to 1% this week. In the European session, EUR/USD is trading at 1.0552, down 0.18%.

Germany has traditionally been the powerhouse of Europe but finds itself lagging in the rear, with a struggling economy and high inflation. The GfK Consumer Climate index fell to -26.5 for October, down from a revised -25.6 in September and shy of the market consensus of -26.0. This was the lowest reading since April and suggests that consumer sentiment will remain weak in the near future. The GfK report warned that private consumption will not contribute towards Germany’s recovery, which is grim news for the eurozone.

Eyes on German inflation, retail sales

One of most eagerly waited eurozone releases is the German inflation report, which will be released on Thursday. The consensus estimate for German CPI stands at 4.6% y/y, compared to 6.4% y/y in August. If the estimate is on track, it would mark a significant win for the ECB, which has been raising rates aggressively in order to curb high inflation.

The ECB raised rates last week, but the lead-up to the meeting was dramatic as it was a 50-50 call whether the ECB would hike or hold. A sharp drop in German inflation could send the euro lower as it would support the ECB taking a pause at the October meeting.

The week wraps up with German retail sales on Friday. After back-to-back declines, retail sales for August are expected to rebound to 0.5% m/m.

The US releases third-estimate GDP for the second quarter on Thursday, with a market consensus of 2.0%. This follows the second estimate of 2.1% and the preliminary estimate of 2.4%. The US economy has recorded respectable growth figures despite the Federal Reserve’s sharp tightening, as the labour market has remained strong and consumers continue to spend.

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EUR/USD Technical

• EUR/USD is testing resistance at 1.0594. Next, there is resistance at 1.0666
• There is support at 1.0544 and 1.0472

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