Eurozone CPI Beats Expectations – ECB Gets Ready to Act
EUR/USD Finds Temporary Support Despite Red-Hot U.S. Inflation. NFP Next.
Accelerating inflation remains a big problem in the United States and the Eurozone, as evidenced by last week’s European CPI and U.S. Core PCE Index. The Eurozone Consumer Price Index accelerated to 10.0% in September, bringing forth the expectation of another huge ECB rate hike. On the other side of the pond, the Core PCE Index posted a 0.6% reading, higher than the forecast 0.5% and the previous 0.0%.
This means that both central banks are likely to continue their restrictive rate policies but there is still a relatively big gap between them because the Fed started to increase long before the ECB and it doesn’t look like it’s going to stop anytime soon.
Key Data for the Week Ahead
Monday at 2:00 pm GMT we take a look at the state of the Manufacturing sector in the U.S. with the release of the ISM Manufacturing PMI. The survey acts as a leading indicator of economic health but the expected change is relatively small: 52.5 from the previous 52.8. If the actual number matches expectations (or comes very close), the impact will be minimal.
Wednesday at 12:15 pm GMT the ADP Non-Farm Employment Change comes out, showing changes in the total number of employed individuals, excluding the farming industry and government. It has a lower impact than the NFP that comes out 2 days later but it gives an early look into the state of the job market in the U.S. The same day, at 2:00 pm GMT, the Services PMI comes out; its impact is similar to the one of the Manufacturing PMI.
Friday is Non-Farm Payrolls day. As most of you know, this is the most important U.S. jobs data and has a tremendous impact on the US Dollar not only on the day of release but on the following period as well. The time of the release is 12:30 pm GMT and the expected number is 265K, lower than the previous 315K. At the same time, the Average Hourly Earnings and the Unemployment Rate will be released. Together, the three indicators paint an accurate picture of the state of the U.S. jobs situation.
Technical Outlook – EUR/USD
The pair is currently trading at 0.9815, after a bounce at 0.9560. The rally was sparked by the oversold condition of the pair and likely by profit-taking by investors who held short positions.
After the bullish bounce, the candles started to pick up bullish momentum (large bodies, small wicks) but Friday was a day with high inflation data for both currencies, hence the doji-like, indecision candle (small body, long wicks in the upper and lower parts).
The bullish rally could continue but the first barrier is the middle line of the Bollinger Bands. If this hurdle can be surpassed, the pair is likely headed for the resistance zone around 0.9950 – 1.0000 and the 50-day Moving Average. A bounce at the middle band may spark another drop into 0.9560 low.
