Euro: Inflation data guides near term – Commerzbank

Commerzbank’s Volkmar Baur notes EUR/USD briefly dipped to 1.115 before recovering above 1.12 as French bond yields stabilized and sentiment improved following the IMF’s World Economic Outlook. He stresses that for EUR/USD today, US September CPI will overshadow structural issues, with elevated market expectations meaning a downside surprise could ease Federal Reserve pressure and support the Euro.

Euro focus shifts to US CPI

"During the night into Tuesday, EUR/USD temporarily fell as low as 1.115, but the exchange rate managed to recover somewhat over the course of yesterday’s session and is back above 1.12 this morning."

"For EUR/USD today, however, structural developments are likely to take a back seat to the concrete US inflation numbers for September."

"The market expects prices to rise sharply by 0.6% month-on-month, which would push the annual inflation rate up to 3.6%. Much of this is once again attributable to higher energy prices. However, the expected increase in core inflation from 2.4% to 2.5% also shows that the story does not end with diesel prices."

"The good news for the euro is that market expectations are already fairly elevated, with US headline inflation forecast at 0.6% month-on-month."

"A modest downside surprise could therefore take some pressure off the Fed and the bond market and, in turn, provide some support for the euro."