Euro extends gains nearing four-week highs amid hot Eurozone Inflation figures

EUR/USD extends its recovery from lows near 1.1100, approaching four-week highs at 1.1280.
Preliminary data revealed that Eurozone consumer inflation hit three-year highs in October.
The USD remains on its back foot, weighed down by a sound Democratic victory in the US midterm elections.

Guillermo Alcala FXStreet

The Euro (EUR) accelerates its recovery against the US Dollar (USD) on Wednesday, favoured by the combination of a sound Democratic win in the US midterm Elections and hot Eurozone inflation data. The EUR/USD pair rallied more than 0.6% on the day to reach session highs a few pips shy of the last four weeks' trading range, at the 1.1260-1.1280 area.

Eurozone data released earlier on Wednesday revealed that the preliminary Harmonized Index of Consumer Prices (HICP) accelerated to a 4% year-on-year growth in October, its highest level in three years, from 3.8% in September, fuelled by the fuelled by the high energy prices.

These figures add pressure on the European Central Bank (ECB) to keep tightening monetary policy further over the coming months, and have offset investors’ disappointment about the downward revision to the October HCOB Services Purchasing Managers’ Index (PMI) released earlier in the day.

Trump’s defeat in US midterms punishes the US Dollar

The US Dollar, on the other hand, is struggling amid news of a sound Democratic victory in the US midterm elections held on Tuesday. The Democrats have taken control in both chambers and turned historical Republican strongholds like Kansas and Texas, among others, to their side.

Investors' concerns that the Democrats will implement regulation on the AI sector and put a brake on data center building plans have increased pressure on tech shares and boosted demand for the safe-haven government bonds.

From a different perspective, Rabobank analysts observe the market has interpreted Democratic control of Congress as implying “fewer fiscal giveaways and therefore less inflation,” a combination that “suggests lower yields on Treasuries, which have negative implications for the USD.”

Economic Indicator

Harmonized Index of Consumer Prices (MoM)

The Harmonized Index of Consumer Prices (HICP) measures changes in the prices of a representative basket of goods and services in the European Monetary Union. The HICP, released by Eurostat on a monthly basis, is harmonized because the same methodology is used across all member states and their contribution is weighted. The MoM figure compares the prices of goods in the reference month to the previous month. Generally, a high reading is seen as bullish for the Euro (EUR), while a low reading is seen as bearish.

Economic Indicator

Harmonized Index of Consumer Prices (YoY)

The Harmonized Index of Consumer Prices (HICP) measures changes in the prices of a representative basket of goods and services in the European Monetary Union. The HICP, released by Eurostat on a monthly basis, is harmonized because the same methodology is used across all member states and their contribution is weighted. The YoY reading compares prices in the reference month to a year earlier. Generally, a high reading is seen as bullish for the Euro (EUR), while a low reading is seen as bearish.

AUD/USD flatlines near 0.6965 as less hawkish RBA counters USD weakness

AUD/USD holds steady above a two-week low, trading near 0.6965 in the Asian session on Wednesday as early midterm election results heighten political uncertainty and weigh heavily on the US Dollar. Moreover, reviving safe-haven demand triggers a fresh leg down in US bond yields, offsetting Fed hike bets and exerting additional pressure on the buck. However, a less hawkish RBA caps the Aussie.

USD/JPY declines below 158.00 as USD weakens on midterm election results

USD/JPY comes under heavy selling pressure on Wednesday, dropping below 158.00 during the Asian session as the US Dollar slumps to a one-month low amid heightened political uncertainty after early US midterm vote counts. Moreover, the prospect of gridlock in Washington drives safe-haven flows, triggering a fresh leg down in US bond yields and further weighing on the buck.

Gold continues scaling new weekly highs; eyes $4,050 as US sticks to elections-led losses

Gold builds on its strong intraday move up, hitting a series of new weekly tops, and climbing back close to the $4,050 level during the first half of the European session amid a broadly weaker US Dollar. Democrats’ wins in the House and Senate raise the prospect of gridlock in Washington. Moreover, heightened political uncertainty drove investors to safe-haven assets, exerting some downward pressure on US bond yields. This is seen weighing on the Greenback and supporting the precious metal.

Bitcoin tests critical support, Ethereum struggles below resistance, XRP extends losses

Bitcoin (BTC), Ethereum (ETH) and Ripple (XRP) remain under pressure on Wednesday as bearish momentum continues to weigh on prices. BTC approaches key support around $76,466, and a decisive close below could open the door to deeper losses. Meanwhile, ETH struggles below key resistance while XRP faces rejection at the upper trendline of a falling channel pattern, all hinting at deeper losses.

ADP Employment Report expected to show slower job growth in October

The Automatic Data Processing Research Institute is due to release October’s private-sector employment report on Wednesday. The market consensus anticipates a moderate slowdown in job creation, with the ADP Employment Change expected to show 69K new private jobs in October, down from 90K in September.

The 2% inflation target came from a throwaway remark. It now moves trillions

The Federal Reserve's 2% inflation goal grew out of an off-the-cuff remark by a New Zealand politician in 1988. Bond investors still price long-term US debt as if 2% holds, so a change in how the Fed measures inflation would move markets.