When is the Eurozone Prelim HICP inflation and how could it affect EUR/USD?
The Eurozone Prelim HICP Overview
Eurostat will publish the preliminary Eurozone Harmonized Index of Consumer Prices (HICP) data for October later on Friday at 10:00 GMT.
Eurozone flash HICP inflation is expected to ease to 2.1% year-over-year (YoY) in October, from 2.2% in September. Meanwhile, the annual core inflation is also anticipated to edge down to 2.3%, from the previous 2.4%.
The monthly Eurozone inflation and core inflation were each at 0.1% in September.
How could the Eurozone Prelim HICP affect EUR/USD?
The EUR/USD pair could extend its losses as the Euro (EUR) may weaken if Eurozone flash HICP data meet expectations, while a stronger US Dollar (USD) adds further downward pressure. Mixed German Retail Sales data had little impact on the pair, as monthly sales rose 0.2% while the annual growth rate slowed to 0.2% in September.
The Euro may draw some support from market expectations of no further interest rate moves by the European Central Bank (ECB) this year. The ECB kept interest rates unchanged for the third consecutive meeting, held on Thursday, as expected, noting that the inflation outlook remains broadly stable, the economy continues to grow, and uncertainty persists.
ECB Governing Council member Martin Kocher stated on Friday that “projections show we are on target for a sustained period.” Kocher added that uncertainty remains high, though some data since September has shown slight improvement.
Technically, the EUR/USD pair is trading around 1.1560 at the time of writing. The technical analysis of the daily chart suggests an ongoing bearish bias as the 14-day Relative Strength Index (RSI) remains below the 50 mark. The immediate support appears at the two-month low of 1.1542, last recorded on October 14. Further declines would prompt the pair to navigate the region around the four-month low of 1.1391. On the upside, the pair may approach the psychological level of 1.1600, followed by the nine-day Exponential Moving Average (EMA) of 1.1605.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
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