Breaking News
Investing Pro 0
Cyber Monday Extended SALE: Up to 60% OFF InvestingPro+ CLAIM OFFER

Eurozone Inflation Set To Hit A New Record High As Euro Tumbles

By XM Group (Trading Point )ForexSep 28, 2022 11:14AM ET
Eurozone Inflation Set To Hit A New Record High As Euro Tumbles
By XM Group (Trading Point )   |  Sep 28, 2022 11:14AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
With the Eurozone economy on the verge of a recession, the euro plummeted to new 20-year lows against its US counterpart this week, even as the ECB has turned more hawkish at its latest gathering. Extremely high natural gas prices, which has been a fear factor in the past, have come notably off their highs, and yet, market participants continued biting their nails, uneasy over the bloc’s economic performance. This means that they may pay extra attention to the bloc’s preliminary inflation data for September, due out on Friday at 09:00 GMT.

ECB accelerates tightening, but does it matter?

At its latest gathering, the ECB raised interest rates by 75bps and pledged to continue raising them as it prioritizes the fight against inflation even as the whole economy looks to be headed towards a recession. At the press conference, ECB President Lagarde signaled that rate increments could continue for a few more meetings but specified that those meetings will probably be less than five, adding that 75bps hikes is not the norm and that future moves could be smaller.

Yet, the market has been leaning towards another 75bps hike at the October gathering, pushing the probability for such an action to around 95% after Lagarde said on Monday that a weak euro has aided to the build-up of inflationary pressures. But does it really matter for the euro by how much the ECB will hike? Even after the prior meeting, when officials delivered the largest increase in this Bank’s history, the euro continued falling. This implies that euro traders are more worried that the Bank will assist in pushing the Euro-area economy deeper into recession than trusting it to tame inflation.

Euro-area inflation to hit a new all-time high

On Friday, Eurozone’s preliminary composite PMI slid to 48.2 from 48.9, indicating contraction for the third month in a row, and adding credence to the case that the GDP rate for Q3 will have a minus sign next to it. This probably increased investors’ anxiety and accelerating inflation this coming Friday will likely do very little to relieve them.

Expectations are for the headline harmonized index of consumer prices (HICP) to have hit a new record high of 9.7% yoy and for the core rate to have ticked up to 5.6% yoy from 5.5%. However, with both the year-on-year rates of oil and natural gas prices sliding notably recently, there is the risk that the spread between the two inflation rates will narrow rather than widen. Either the headline rate did not rise as expected or the core one increased by more. Mathematically, this also includes the case of both rates sliding, with the headline falling more than the core. But with the euro tumbling throughout the whole month, this appears to be an unrealistic scenario.

In any case, with demand for energy having the potential to increase during winter months, inflation could accelerate again, even if there is a downside surprise this week.

One-way ride for the euro

A downside surprise could mean that the ECB may not need to act as aggressively as currently expected and may force the euro to extend its tumble without correcting higher. On the other hand, a new inflation record could validate speculation of a more forceful ECB and thereby allow a rebound. Nonetheless, with traders fearful of higher interest rates hurting even more the already injured economy, the currency may soon resume its prevailing downtrend.

Euro/dollar could rebound from near the crossroads of the 0.9550 barrier and the lower bound of the downward sloping channel that’s been containing the price action since January 28. That said, the bears could take charge again from around the 0.9860 zone and push for another test at 0.9550, which if broken may stretch the downtrend towards the 0.9335 territory, defined as a support by the low of June 6, 2002.

The bullish case could be put on the table upon a break above 1.0200 accompanied by data suggesting that the ECB’s actions are having the desired effect on inflation, as well as that the economy is withstanding the pressure of higher rates. Such a recovery could confirm the upside exit out of the channel and may initially target the 1.0370 barrier, marked by the high of August 10, where another break could set the stage for the peak of June 27, at 1.0615.

Eurozone Inflation Set To Hit A New Record High As Euro Tumbles

Related Articles

Al Brooks
EUR/USD: Bulls May Exit Below By Al Brooks - Dec 06, 2022 3

The EUR/USD is forming a wedge top after the November 10 and 11 bull breakout. Bears want two legs down at a minimum. Next, the bears want a downside breakout below the November...

Scott Barkley
GBP/JPY: Big Range Opportunity By Scott Barkley - Dec 06, 2022

Bearish: GBP/JPY is currently at 166.51 in a range. If we can break the support here, we are looking for a continuation to the ATR target at 164.92 with a further target the Day...

Eurozone Inflation Set To Hit A New Record High As Euro Tumbles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email