EUR/USD weakened after the release of the US Consumer Price Index (CPI) data for September, which showed inflationary pressures growing at a faster pace than expected. The annual core CPI accelerated to 3.3%, while the headline CPI rose by 2.4%. Despite this stubborn inflation data, market expectations for the Federal Reserve to reduce interest rates further by 50 basis points in the remainder of the year remain unchanged.
Recent comments from Fed officials indicate their focus on reviving job growth, leading to a larger-than-usual rate cut of 50 basis points in the September policy meeting. The Euro is under pressure as the European Central Bank (ECB) is expected to reduce interest rates further by 50 bps by year-end. ECB officials have argued in favor of further rate cuts as inflation risks in the Eurozone have eased, with annual Harmonized Index of Consumer Prices (HICP) decelerating to 1.8%.
Additionally, the German economic ministry expects the economy to end the year with a 0.2% decline in overall output, citing structural problems and geopolitical issues. German Retail Sales saw a robust expansion in August, prompting inflationary pressures, while ECB Monetary Policy Meeting Accounts for September indicated policymakers expect inflation in the Eurozone to rise in the latter part of the year.
On the technical front, EUR/USD extended its downside below the 200-day Exponential Moving Average (EMA) after failing to hold the key support of 1.0950. The pair broke below a Double Top chart pattern formation on the daily timeframe and is expected to find support near the round-level support of 1.0800. The 14-day Relative Strength Index (RSI) suggests more weakness ahead.
The Consumer Price Index ex Food & Energy (YoY) measures inflationary or deflationary tendencies by summing the prices of a basket of goods and services. The YoY reading compares prices in the reference month to the same month a year earlier. A high reading is bullish for the US Dollar, while a low reading is bearish. CPI data is released monthly by the US Department of Labor Statistics to provide a snapshot of price pressures in the economy.
