Euro pushes higher as German inflation falls

• German inflation falls to 3.8%
• Eurozone inflation expected to follow suit on Wednesday

The euro is in positive territory on Monday. In the North American session, EUR/USD is trading at 1.0502, up 0.36%.

German inflation slides

Germany’s consumer inflation dropped to 3.8% y/y in October, down sharply from 4.5% in September and below the market consensus of 4.0%. Food and energy prices decreased, which contributed to the inflation print being the lowest since August 2021. Core inflation dropped from 4.6% to 4.3%.

The inflation data is an encouraging sign for the ECB, which paused interest rates last week after 10 consecutive increases. ECB President Lagarde said after the meeting that a pause did not mean that hikes were off the table and poured cold water on any thoughts of a rate cut. Lagarde doesn’t want to commit to rates having peaked, but the ECB would be happy to hold rates, given the worrying growth outlook for the bloc. Unless the economy suddenly rebounds or inflation rises, there is a strong chance that the rate-tightening cycle is over.

The eurozone will release the October inflation report on Tuesday and is expected to follow the German lead. Headline inflation is projected to fall to 3.1%, down from 4.3% in October, while the core rate is expected to fall from 4.5% to 4.2%.

The Federal Reserve has sounded hawkish about inflation and received support for its stance from Friday’s core PCE price index, which rose 0.3% m/m in September, up from 0.1% in August and the highest level in four months. The headline indicator rose 0.4%, unchanged from August and above the estimate of 0.3%. There are some inflation risks heading into next year, but the markets have priced in pauses in the November and December meetings.

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EUR/USD Technical

• EUR/USD is testing resistance at 1.0595. The next resistance line is 1.0664
• 1.0495 and 1.0426 are providing support

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