Euro awaits CPI report
The euro has declined in overnight trading as traders prepare themselves for the eurozone inflation report at 10am (London time). On an annual basis, inflation is expected to tick up by 0.1% to 0.4% in September.
Deflation is the watchword of the European Central Bank and any slip in the cost of living would ramp up speculation that the ECB could take more drastic action to stimulate the economy, like announcing a quantitative easing policy which would put tremendous pressure on the euro.
The euro was sent tumbling on Wednesday when the Federal Reserve announced the end of QE3. The dust began to settle yesterday and the EUR/USD recouped some of its losses. Even when the impressive US GDP figure was found out to not be as strong as initially thought, the euro failed to make a sizeable rally.
Meanwhile, the unexpected expansion in the stimulus from the Bank of Japan has given a major boost to the US dollar, which only adds the euro’s problems.
EUR/USD is in a downward trend. The next level lower is the low of the month at $1.25, and a considerable move through this would put $1.24 in sight. If the CPI comes in higher than expected we could see the euro hit $1.26 and the next level up would be $1.2640, and after that $1.27.