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Euro: inflation dominates market focus, UK data in tow

A significant drop in energy prices is expected to drive UK headline inflation from its 2022 peak of 11% to 4.7% in October. Meanwhile, the FTSE remains in a holding pattern, eyeing a potential market shift.

Source: Bloomberg

In the current market landscape, attention has pivoted decisively towards the issue of inflation, with a keen focus on the upcoming UK inflation data scheduled to follow hot on the heels of the latest US inflation report.

Tackling inflation with heightened rates

During its recent meeting, the Bank of England (BoE) acknowledged that heightened interest rates were effectively contributing to the reduction of inflationary pressures. After peaking at an eye-popping 11% in 2022, a large decline in energy prices should see headline inflation fall to 4.7% in October from 6.7% in September. Core inflation is expected to fall to 5.8% in October from 6.1% previously. Cooler inflation data will be supported by good news on wages, expected to show regular earnings eased to 7.7% from 7.8% previously and headline pay falling 0.8pp to 7.3%.

Cooling trends in inflation and economic landscape

The trend lower in food and energy prices, a cooling labour market, and tepid growth are expected to see headline inflation decline to 2% by the middle of next year; and core inflation to reach 2.5% by the end of 2024. The pace of the decline is expected to allow the BoE to keep its official bank rate on hold at 5.25% into the middle of 2024.

FTSE technical analysis

The FTSE continues to trade sideways above horizontal support at 7200, and below downtrend resistance at 7650ish, coming from the February 8047 high as well as the 200-day moving average at 7613.

If the FTSE can see a sustained break above the resistance layers at 7615/50ish, it would set up a retest of the February 8047 high. Aware that until this occurs, further range trading is likely, including a possible retest of range lows at 7200.

FTSE daily chart

Source: TradingView

DAX technical analysis

The decline from the August 16,615 high is similar in structure to the decline in the S&P 500 from its high, in that it displays countertrend or corrective traits rather than impulsive.

The first indication that the correction in the DAX is complete at the 14,666 low would be a close above the broken uptrend support, now resistance at 15,480ish, coming from the October 2022 11,829 low. It would then require a break above the downtrend resistance currently at 15,550, coming from the July 16,615 high.

Finally, it must conquer a layer of resistance at 15,680/720ish from the mid-October high and the 200-day moving average now at 15,720.

DAX daily chart

Source: TradingView
  • Source Tradingview. The figures stated are as of 14 November 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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