Euro-zone inflation preview: Dismal figure already priced in – but EUR/USD unlikely to recover


  • Euro-zone inflation figures may disappoint as German data missed the mark.
  • A "buy the rumor, sell the fact" response that supports EUR/USD is possible.
  • Yet the general gloom means a rise may be temporary. 

Euro-zone inflation is going to come out below expectations. Refraining from making a clear affirmation about a future event is unnecessary for this figure as preliminary data for Spain, France, and Germany all missed early estimates.

Europe's largest economy saw the Harmonized Index of Consumer Prices (HICP) rising by only 0.9% in September – below 1% expected. EUR/USD lost 1.09 in response – falling to the lowest levels since 2017. An all-European figure of 0.9% instead of 1% that appears on the calendar is highly likely. 

EUR/USD reaction

The country-level figures are also taken into account by investors. If the headline Consumer Price Index (CPI) rises by 1% – as the economic calendar shows – it will probably be deemed as a positive surprise, and the euro could rise.

An increase of 0.9% would probably be shrugged off as an "as expected" figure, and may even trigger a "buy the rumor, sell the fact" reaction – an increase in the euro as the data could have been worse.

It would probably take a slowdown to 0.8% to push the common currency lower. The European Central Bank officially targets headline inflation and aims to reach "2% or close" inflation – missing its objective for years.

What country-level figures have not revealed is core inflation. CPI that excluded volatile items such as energy prices has also been subdued as well, standing at 0.9% in August. Expectations stand at 1% for September. As this figure has disappointed in the past, another shortfall cannot be ruled out. A no-changed number of 0.9% would also be in line with figures seen in the recent past, as the chart shows.

Euro zone core inflation development 2008 2019

It would take a rise to 1.1% or more in Core CPI could push the euro higher if CPI does not fall below 0.9%. A slowdown to 0.8% also falls within the latest range – and would weigh on the euro.

After the dust settles

Even if EUR/USD advances on a "buy the rumor, sell the fact" reaction, the recovery will likely be short-lived. The general trend in the world's most popular currency pair – and the euro-zone economies – is down.

Germany is on the verge of recession, the Brexit and US-Sino trade wars pose more uncertainty – and the European Central Bank is open to adding even more stimulus. The recent resignation of Sabine Lautenschläger – the hawkish German member of the bank – opens the door to more dovish influences. 

Conclusion

Headline euro-zone inflation is set to miss expectations after country-level data disappointed while Core CPI may surprise – but not necessarily to the upside. EUR/USD may rise on a "buy the rumor, sell the fact" reaction, but any advance will likely be short-lived given the gloomy economic situation in the euro-zone.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news

Latest Forex Analysis


Latest Forex Analysis

Editors’ Picks

EUR/USD: Bears stepping in below 1.1600, focus on ECB, US GDP

EUR/USD remains under pressure below 1.1600, as the US dollar extends the late Wednesday bids amid broad risk-aversion. Traders turn cautious amid stagflation fears and ahead of Thursday's ECB policy decision and the US Q3 GDP release. 

EUR/USD News

GBP/USD: Sellers attack 50-DMA on monthly support break

GBP/USD prints a three-day downtrend following the key support break, pressured around 1.3740 during the early Asian session on Thursday. The cable pair broke an ascending support line, now resistance, from September 30 the previous day but refrained from closing below 50-DMA.

GBP/USD News

Gold remains pressured near $1,800 amid USD recovery

Gold prices surrender the previous session's gains and struggle to defend the $1,800 mark. The US 10-year Treasury yields rebound from the early lower levels to trade at 1.55%, following the upcoming BOJ and the ECB policy meetings on the day.

Gold News

Shiba Inu could surpass Dogecoin after a 700% SHIB price rally in October

Shiba Inu (SHIB) continued its march upward on Oct. 27, with its price hitting a record high of nearly $0.000060 before correcting lower. SHIB rallied by more than 25% to an all-time high of $0.00005959, crossing above its previous all-time high of 0.00005000, according to data from Binance.

Read more

BOJ Preview: Focus on outlook tweaks ahead of general election Premium

Despite the recent depreciation in the yen and rising energy prices, the Bank of Japan (BOJ) is likely to maintain its monetary policy settings on Thursday, as it concludes its two-day monetary policy review meeting.

Read more

Majors

Cryptocurrencies

Signatures