Euro shrugs after eurozone inflation rises

The euro is showing little movement on Friday. In the European session, EUR/USD is trading at 1.0564, up 0.09%. There are no US events today and US markets will close early for the Thanksgiving holiday weekend.

Eurozone inflation jumps to 2.3%

Today’s eurozone inflation report was a reminder that inflation may be largely contained but the battle is not yet over. In November, CPI climbed to 2.3% y/y, up from 2% in October and matching the market estimate. Core inflation, which excludes volatile food and energy prices and is a better gauge of inflation trends, was unchanged at 2.7% y/y, shy of the 2.8% market estimate. Services inflation, which has been persistently high, rose 3.9%.

On a monthly basis, inflation declined in November, which could signal that disinflation is continuing. Headline CPI declined 0.3%, core CPI dropped 0.4%, and services inflation fell 0.9%.
The European Central Bank has strongly hinted at a rate cut in December and the November inflation data is unlikely to change those plans. The ECB can point to the monthly decline in the core rate and services inflation and weak economic activity as support for a rate cut.

The most recent PMI report showed that the eurozone services sector contracted for the first time in 10 months. Today’s German retail sales report pointed to weak consumer spending in the eurozone’s largest economy. Retail sales were down 1.5% m/m in October, after a revised 1.6% gain in September and below the market estimate of -0.3%. Annually, retail sales gained 1%, compared to a revised 4.2% in September and well below the market estimate of 3.2%.

EUR/USD Technical

• EUR/USD pushed above resistance at 1.0575 and 1.0595 before retreating
• 1.0551 is under pressure as support. The next support line is 1.0531

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