Euro gains ground, German inflation slides

• German inflation falls sharply
• US GDP expands 2.1%, unemployment claims tick higher

The euro continues to show volatility. EUR/USD has jumped 0.53% on Thursday, erasing almost all of the losses sustained on Thursday. The euro is trading at 1.0552 in the European session.

German inflation falls to 4.5%

Germany’s inflation level dropped to 4.5% y/y in September, a sharp decline from the August reading of 6.1% y/y and just below market expectations of a  gain of 4.5% y/y. Much of the downswing was due to a sharp drop in energy costs. The September release is the lowest inflation level since February 2022, when the Ukraine war broke out. The core inflation rate, which excludes food and energy, fell from 5.5% y/y to 4.6% y/y, marking a one-year low.

The ECB will no doubt be pleased with the sharp drop in German inflation. The central bank raised rates earlier this month but signalled that its rate tightening cycle was close to being over. All eyes will be on Friday’s release of eurozone CPI on Friday, which is expected to fall in August from 5.2% y/y to 4.5% y/y.

US GDP unchanged at 2.1%

In the US, third-estimate GDP for the second quarter was unchanged at 2.1%. This was very close to the 2.2% gain in the first quarter and is indicative of a solid US economy that has performed well despite sharp tightening from the Federal Reserve. The labour market remains tight as seen in Thursday’s unemployment claims release, which came in at 204,000 in the week ending September 23^rd, little changed from 202,000 a week earlier.

The GDP and jobless claims present a bright picture of the US economy, but a looming government shutdown and the auto workers’ strike could dampen the outlook for the fourth quarter. The government shutdown will begin on October 1^st unless Congress can hammer out a spending agreement in the next few days.

EUR/USD Technical

• EUR/USD tested resistance at 1.0544 earlier. Next, there is resistance at 1.0594
• There is support at 1.0472 and 1.0419

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