EUR/USD: Inflation data will probably bring a draw – Commerzbank

FXStreet Insights Team FXStreet

Economists at Commerzbank analyze EUR/USD analyze EUR/USD outlook ahead of the US PCE deflator and November inflation data from the Eurozone

EUR/USD to settle above 1.10 if December’s US CPI surprises to the downside and inflation rate in the Eurozone rises back above 3%

We might see a draw between the Euro and the Dollar. Even though the USD optimism is increasingly being priced out, the USD will presumably only come under limited (new) pressure as the PCE deflator is unlikely to surprise. The EUR on the contrary might come under pressure as a result of the Eurozone inflation data.

It may require clearer and more convincing evidence for EUR/USD to appreciate above the 1.10 mark on a sustainable basis, which the inflation data from the US and the Eurozone for December might provide.

If we see another surprise to the downside in the US (please remember the reaction in November to the US CPI data when the Dollar came under huge pressure) and if at the same time, the inflation rate in the Eurozone rises back above 3% again (as the strong fall in energy prices in December 2022 (-6.6%) is eliminated from the YoY comparison) this might push EUR/USD sustainably above 1.10 before year-end.

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